Bonus Depreciation and First Year Write Off of Qualified Assets
In an attempt to spur economic activity, for the last few years Congress has increased the amount of depreciable assets placed in service that taxpayers are allowed to deduct (the deduction). As 2010 began, the deduction was limited to $250,000. However, this amount is reduced by the amount by which the cost of property placed in service during the year exceeds a certain threshold amount. For 2010, the threshold amount was set at $800,000.
Congress has also temporarily expanded the definition of qualifying property to include certain real property - specifically, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. The maximum amount that may be expensed for such real property is $250,000. If it's advantageous to your particular situation, however, you can elect to exclude real property from the definition of property.
In addition to allowing a greater deduction, Congress is also extending the additional 50% first-year bonus depreciation deduction into 2010. The extension applies for qualified property acquired and placed in service during 2010. With this change, first-year depreciation limitations on automobiles is increased by $8,000. Therefore, for 2010, the first-year depreciation deduction for business cars placed in service in 2010 is $11,060.
Deduction for Health Insurance Costs
Effective for tax years after December 31, 2009, health insurance costs of Self-Employed Individuals will be taken into account when calculating net earnings from self-employment, for purposes of the tax on Self-Employment Income.
Rental Property Expense Payments
Effective for payments made after December 31, 2010, rental income recipients who made payments of $600 or more to a service provider (e.g., a plumber, painter, or accountant) in the course of earning rental income now will have to provide a Form 1099-Misc to the IRS and service provider.
It is important to note that the penalties for everyone who does not file the required Form 1099-Misc. have been heavily increased.
General Business Credit Carrybacks
For business tax year beginning in 2010, Congress has extended the one-year carryback to 5 years for an eligible small business. Additionally, Congress has provided that this eligible small business credit may offset both regular and alternative minimum tax liability. For these purposes, an eligible small business is a non-publically traded corporation, or a partnership, if the annual gross receipts of the entity for the three-tax-year period ending with the prior tax year does not exceed $50 million. For sole proprietors, this $50 million test is applied as if it were a corporation.
This provision will allow some eligible small businesses to take advantage of the general business credit at an accelerated rate, rather than possibly having to carry the credits forward up to 20 years.
Some of the eligible small business credits included are:
Research & Development (R&D) Tax Credit
Work Opportunity Credit
Low-Income Housing Credit
Temporary Reduction in Recognition Period for S Corporation Built in Gains Tax
The recognition period for the Built in Gains Tax is normally a 10 year period from the point of C corporation conversion to an S corporation. Provisions within the American Recovery and Reinvestment Act of 2009 state that for any taxable year beginning in 2009 and 2010, no built in gains tax is imposed on the corporation for built-in gains if the seventh taxable year in the corporation's recognition period preceded such taxable year. Under the Small Business Jobs Act of 2010, for taxable years beginning in 2011 the seventh year is replaced with five years following the date which the entity became an S corporation.
Start-Up Expenses
For new businesses in the 2010 year, $10,000 may be expensed with a phase out after $60,000 of qualified Start-Up expenses. This was a $5,000 amount with a $50,000 phase out.
Temporary Exclusion of 100% of Gain on Certain Small Business Stock
Section 1202 provides that individuals may exclude 100% of gain from the sale of certain small business stock (must be a C corporation) acquired between September 28, 2010 through December 31, 2010.
Additional Tax Highlights
E-Filing Mandate for Individual Federal Returns
Beginning January 1, 2011, tax preparers filing 100 or more federal individual returns are required to file returns electronically. The "100 or more" is replaced with "11 or more" in 2012.
The IRS will release regulations for taxpayers to opt out of electronic filing if they so chose.
Delaware: Retail Beverage Container License and Recycling Fee
Beginning December 1, 2010, the State of Delaware now requires any person or business engaged as a retailer in selling any "beverage" in beverage containers must obtain a State of Delaware Retail Beverage Container Business License (at no cost) for each location at which beverage containers are sold and remit to the State a Recycling Coupon with the $0.04 Recycling Fee for each beverage container sold.
This fee applies only to non-aluminous containers containing less than 2 quarts of beverage under pressure of carbonation. This requirement expires December 1, 2014.
