8 Small Business Tax Law Changes That Could Help You Save More

The Small Business Jobs Act and the Tax Relief Act (both of 2010) might be more than a year old, but they can still help small business owners save money on their 2011 taxes. For your reference, here are eight changes from those laws that you should consider when preparing and filing your business return:

1.Business Startup Expenses

“… the Act temporary increases in the deduction that entrepreneurs can claim for startup expenses from $5000 to $10,000. The $10,000 deduction is reduced by the amount of total start-up costs that exceeds $60,000. Qualifying trade or business startup expenses include costs related to investigating, creating, or acquiring an active trade or business. Qualifying costs cannot be directly related to capital or equipment.” (The Small Business Jobs Act and Your Small Business by The D. J. Marcus Law Firm)

2.Bonus Depreciation 

“… the Tax Relief Act provided for 100% bonus depreciation for qualified property placed in service after September 8, 2010 and before January 1, 2012 (certain long-lived property and transportation property may be placed in service before January 1, 2013). In effect, taxpayers placing property in service between September 8, 2010 and January 1, 2012 will receive 100% bonus deprecation.” (End of Year Tax Planning: Taking Advantage of Expiring Tax Incentives by Butler, Snow, O’Mara, Stevens and Cannada, PLLC)

3.Healthcare Tax Credit

“The small business healthcare tax credit allows small business owners and small tax-exempt organizations provide health care insurance coverage to their workers for the first time or maintain the coverage that already exists. This is specifically for lower and moderate income workers.” (Tax Tips for Small Business Owners by Darrin Mish, Tampa Tax Attorney)

4.Equipment Write-offs

“Under the new law, the Section 179 expensing election allows businesses with active trade or business income to immediately expense up to $500,000 of tangible personal property placed into service in 2010 and 2011. The maximum amount of the deduction begins to phase out when total eligible purchases exceed $2,000,000 (versus the existing $800,000 limit). Also, taxpayers may elect to expense up to $250,000 of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.” (Congress Approves Small Business Bill by Partridge Snow & Hahn LLP)

5.Employee Cell Phones

“The Act removes cell phones from the definition of listed property for tax years beginning after December 31, 2009. This means that tax-exempt entities would be able to deduct these costs and no longer to be required to include the cost of the cell phones and cell phone service in their employees’ income.” (President Signs Small Business Jobs Act of 2010 by Luce Forward)

6.Exemption on Gains from Sale of Small Business Stock

“The [Tax Relief Act] extends the 100 percent exclusion of gain recognized upon the sale or exchange of qualified small business stock. In general, noncorporate taxpayers will be able to exclude 100 percent of the gain on the sale or exchange of stock if it is qualified small business stock, is acquired after September 27, 2010, and before January 1, 2012, and is held for more than five years.” (Key Provisions of the 2010 Tax Relief Act by Womble Carlyle Sandridge & Rice, PLLC)

7.Carryback of Business Credits

“Eligible small businesses will be able to carryback eligible small business credits five years, instead of only one year… In the case of a sole proprietorship, the gross receipts test is applied as if it were a corporation… This credit carryback allows the small business owner to use the credit to offset both regular and alternative minimum tax liability.” (The Small Business Jobs Act of 2010 – Tax Changes and Incentives to Small Businesses by Brad Hamilton)

8.Simplification of Conversion to S Corporation

“Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 years following its conversion or face a business-level tax imposed on the built-in gain at the highest corporate rate of 35 percent. The Act temporarily shortens the holding period of assets subject to the built-in gains tax…” (Small Business Jobs Act of 2010 by Armstrong Teasdale LLP)


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