Last-Minute Review of 2010 Tax Changes for Small Businesses

With just one week to go before this year's official tax filing date -- April 18 -- we at GoodBiz113 wanted to provide an overview of IRS tax changes for small-business owners and self-employed folks. If you haven't yet filed your 2010 tax return, pay heed to the following tax-law revisions. If you have filed your 2010 return and it doesn't reflect these changes, then amend it accordingly -- ASAP.

During 2010, new laws -- such as the Affordable Care Act and the Small Business Jobs Act of 2010 [SBJA] -- created or expanded deductions and credits that small businesses and self-employed individuals should consider when completing their tax returns and making business decisions in 2011.

Health Insurance Deduction Reduces Self Employment Tax
With the enactment of the Small Business Jobs Act of 2010, self-employed taxpayers who pay their own health insurance costs can now reduce their net earnings from self-employment by these costs.

Previously, the self-employed health insurance deduction was allowed only for income tax purposes. For tax year 2010, self-employed taxpayers can also reduce their net earnings from self employment subject to SE taxes on Schedule SE by the amount of self-employed health insurance deduction claimed on line 29 on Form 1040.

Taxpayers can claim the self-employed health insurance deduction if the insurance plan is established under their business, and if either of the following are true:

* They were self-employed and had a net profit for the year; or

* They received wages from an S corporation, in which the taxpayer was a more-than-two-percent shareholder.

During tax year 2008 -- the most recent year for which data is available -- the self-employed health insurance deduction was claimed on 3.6 million tax returns, reducing taxpayers’ adjusted gross incomes by $21 billion.

Small Business Health Care Tax Credit
In general, the Small Business Health Care Tax Credit is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

Small businesses can claim the credit for 2010 through 2013, and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses, and 25 percent of premiums paid by eligible tax-exempt organizations.

Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers, and 35 percent of premiums paid by eligible tax-exempt organizations.

The maximum credit goes to smaller employers -- i.e., those with 10 or fewer full-time equivalent [FTE] employees -- paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.

Eligible small businesses will first use Form 8941 to figure the credit, and then include the amount of the credit as part of the general business credit on its income tax return.

The IRS has developed a page on IRS.gov devoted to this credit, with answers to frequently asked questions plus explanations of the credit through various tax scenarios.

General Business Credit for Employers
The general business credits of eligible small businesses in 2010 are not subject to alternative minimum tax. The new law allows general business credits to offset both regular income tax and alternative minimum tax of eligible small businesses as described in Section 2012 of the Small Business Jobs Act.

The provision is effective for any general business credits determined in the first taxable year beginning after Dec. 31, 2009, and to any carryback of such credits. For a list of the general business credits, see Form 3800.

Small Businesses Can Benefit from Higher Expensing/Depreciation Limits
For tax years beginning in 2010 and 2011, small businesses can expense up to $500,000 of the first $2 million of certain business property placed in service during the year.

In general, businesses can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property, after the relevant section in the Internal Revenue Code.

Section 179 property is property that you acquire by purchase for use in the active conduct of your trade or business, including:

* Tangible personal property.

* Other tangible property [except buildings and their structural components] used as:

1. An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services;

2. A research facility used in connection with any of the activities in [1] above; or

3. A facility used in connection with any of the activities in [1] above for the bulk storage of fungible commodities.

* Single-purpose agricultural [livestock] or horticultural structures.

* Storage facilities [except buildings and their structural components] used in connection with distributing petroleum or any primary product of petroleum.

* Off-the-shelf computer software.

Section 179 property generally does not include land, investment property [section 212 property], property used mainly outside the United States, property used mainly to furnish lodging, and air conditioning or heating units.

The Small Business Jobs Act of 2010 increases the section 179 limitations on expensing of depreciable business assets for tax years beginning in 2010 and 2011, and expands temporarily the definition of section 179 property, for tax years beginning in 2010 and 2011, to include certain qualified real property a taxpayer elects to treat as section 179 property. Qualified real property means qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.

The $500,000 amount provided under the new law is reduced, but not below zero, if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $2 million.

For tax years beginning in 2012, the maximum amount is $125,000; before enactment of the 2010 tax relief legislation, it was set at $25,000.

Depreciation Limits on Business Vehicles
The total depreciation deduction -- including the section 179 expense deduction, and the 50 or 100 percent bonus depreciation -- you can take for a passenger automobile [that is not a truck or a van] you use in your business and first placed in service in 2010, is increased to $11,060. The maximum deduction you can take for a truck or van you use in your business and first placed in service in 2010, is increased to $11,160.

If you do not take any bonus depreciation for the passenger automobile, truck, or van you use in your business and first placed in service in 2010, the maximum deduction you can take for a passenger automobile is $3,060, and for a truck or van is $3,160.

50 or 100 Percent Bonus Depreciation
Generally, businesses can take a special depreciation allowance to recover part of the cost of qualified property placed in service during the tax year. The allowance applies only for the first year you place the property in service.

Businesses that acquire and place qualified property into service after Sept. 8, 2010, can now claim a depreciation allowance of 100 percent of the cost of the property. The property must be placed in service before Jan. 1, 2012 [Jan. 14, 2013, in the case of certain longer-lived and transportation property].

Businesses that acquire qualified property during 2010 on or before Sept. 8, 2010, can claim a depreciation allowance of 50 percent of the cost of the property. The property must be placed in service before Jan. 1, 2013 [Jan. 1, 2014, in the case of certain longer production period property and for certain aircraft].

The allowance is an additional deduction you can take after any section 179 deduction, and before you figure regular depreciation under MACRS for the year you place the property in service. The types of property that can be depreciated are described in the instructions to Form 4562.

Small Businesses to Use EFTPS for Deposits Beginning in 2011
The paper coupon system for Federal Tax Deposits will no longer be maintained by the Treasury Department after Dec. 31, 2010. Most businesses must now make deposits and pay federal taxes through the Electronic Federal Tax Payment System [EFTPS].

Using EFTPS to make federal tax deposits provides substantial benefits to both taxpayers and the government. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.

Deposits can be made online with a computer, or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty.

The system helps taxpayers schedule dates to make payments -- even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.

Information on EFTPS -- including how to enroll -- can be found online, or by calling EFTPS Customer Service at 1-800-555-4477.

Some businesses paying a minimal amount of tax may make their payments with the related tax return, instead of using EFTPS. More details regarding taxes required to be deposited using EFTPS, dollar thresholds and other specific requirements are described on page 2 of IRS Publication 15, [Circular E] Employer's Tax Guide.

For "one-stop-shopping" small-biz tax info, go to the IRS Small Business and Self-Employed Filing Season Central: http://1.usa.gov/f8iJSr.

If, for whatever reason, you're not able to file your tax return by midnight on Monday, April 18, then simply file Form 4868 to apply for an automatic extension. Doing so will allow you six additional months to file -- i.e., till midnight on Oct. 17, 2011.

SOURCE: HealthCare.gov, Internal Revenue Service, U.S. Small Business Administration
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TurboTax Home & Business Federal + e-File + State 2010 [Download] ^AF

Obama Administration's Funds for Connecticut, Missouri, and Vermont to Spur at Least $534 Million in New Small-Business Lending, Help Create Jobs

Today, the U.S. Department of the Treasury announced approval of State Small Business Credit Initiative [SSBCI] applications from Connecticut, Missouri, and Vermont. The planned use of SSBCI funds by these states will help create new jobs, and is expected to spur more than $534 million in additional small-business lending. The SSBCI program, which supports state-level small business lending programs, is an important component of the Small Business Jobs Act that President Obama signed into law last fall.

"These critical funds will help small businesses access the capital they need to expand their operations, create new jobs, and continue supporting our nation’s economic recovery," said Treasury Secretary Tim Geithner [pictured]. "Public-private lending partnerships, such as the State Small Business Credit Initiative, have a proven track record of success, and I’m pleased that this funding is on its way to support economic growth in these states."

Under the SSBCI, all states are offered the opportunity to apply for federal funds for state-run programs that partner with private lenders to increase the amount of credit available to small businesses. States must demonstrate a reasonable expectation that a minimum of $10 in new private lending will result from every $1 in federal funding. Accordingly, the $1.5 billion federal funding commitment for this program overall is expected to result in at least $15 billion in additional private lending nationwide.

Details on the applications approved today -- which the states expect will generate a cumulative total of at least $534 million in new small-business lending in Connecticut [$133 million], Missouri [$269 million], and Vermont [$132 million] -- are included below.

Geithner announced the approval of this latest wave of SSBCI applications during a conference today at the Treasury Department entitled, "Access to Capital: Fostering Growth and Innovation for Small Companies." The conference brings together policymakers, entrepreneurs, investors, academics, and other market participants to explore how both the public and private sectors can help promote access to capital at each stage of growth for a small business -- from seed capital, to growth equity, to accessing the public markets.

Treasury has previously approved funding for SSBCI programs in California, Michigan, and North Carolina. Additional applications are expected to be approved in the coming weeks. For more information about the SSBCI, please visit http://1.usa.gov/SSBCI.

Connecticut: At Least $133 Million in New Small-Business Lending
With SSBCI approval of Connecticut’s application, can access up to $13.3 million in SSBCI funding -- which Connecticut expects to generate more than $133 million in new small-business lending in the state.

"Connecticut's economic recovery is driven by small businesses and their strong plans for growth," said Connecticut Governor Dannel P. Malloy. "We need to ensure they have the capital necessary for hiring, purchasing of machinery and equipment, and expansion of facilities in our state. In partnership with the banks and the Connecticut Development Authority, Connecticut's small-business owners will now have more resources for that growth."

Connecticut’s approved plan dedicates its $13.3 million in SSBCI funding to support its Capital Access Program [CAP], which provides loan portfolio insurance to encourage private financial institutions to lend to creditworthy small businesses. Connecticut has administered its CAP for more than 19 years. During this period, it has provided portfolio insurance for about 630 enrolled loans, totaling over $53.4 million -- resulting in the creation of, or saving of, 6,120 jobs.

Missouri: $269 Million-Plus in New Small-Business Lending
With SSBCI approval of Missouri’s application, Missouri can access up to $26.9 million in SSBCI funding, which it expects to generate more than $269 million in new small-business lending in the state.

"Along Main Streets in every corner of Missouri, small businesses are a critical force for creating jobs and growing our economy," Missouri Gov. Jay Nixon said. "These new resources will help Missouri entrepreneurs grow their operations, and turn their dreams into bricks and mortar.

"We appreciate the leadership shown by President Obama and Secretary Geithner in providing these resources for our state, and we will invest these tools wisely and strategically in businesses that will transform Missouri’s economy for the 21st Century."

Missouri’s approved plan dedicates $16.9 million of the state’s SSBCI funding to establish the high-tech Missouri IDEA Seed and Venture Capital Funds [IDEA Funds]. IDEA stands for Innovation, Development and Entrepreneurial Advancement.

The Missouri IDEA Funds promote the formation and growth of businesses that engage in the transfer of science and technology into job creation. The funds provide financing to eligible businesses through four components that correspond to the four stages of venture growth: 1] pre-seed capital stage financing; 2] seed-capital stage financing; 3] venture-capital stage financing; and 4] expansion-stage debt.

Collectively, these four components will provide financing opportunities throughout the process that entrepreneurs call the "continuum of capital." In this way, the funds will support new venture formation and growth all the way from research and development to commercialization.

Missouri’s approved plan also dedicates $10 million of SSBCI funding to the Grow Missouri Loan Participation Fund. That program supports the formation and growth of businesses in the industrial, commercial, agricultural, and recreational sectors. It provides loans of up to $3 million to businesses with under 500 employees to help attract new enterprises and expand existing companies.

Vermont: More Than $132 Million in New Small-Business Lending
With SSBCI approval of Vermont’s application, Vermont can access up to $13.2 million in SSBCI funding, which it expects to generate more than $132 million in new small-business lending in the state.

"This $13.2 million in federal small-business funding is terrific news for Vermont," declared Vermont Governor Peter Shumlin, "and it would not have been possible without the strong advocacy efforts of our Congressional delegation.

"We thank Sen. Patrick Leahy, Sen. Bernie Sanders, and Congressman Peter Welch for their efforts, and also thank the U.S. Department of the Treasury for this well-timed award. With the help of Vermont’s private-sector leverage, these federal funds will go far, giving our small businesses the critical boost they need to create jobs for Vermonters."

Vermont’s approved plan dedicates $1 million of the state’s SSBCI funding to support its Financial Access Program [FAP], which provides loan portfolio insurance to encourage private financial institutions to lend to creditworthy small businesses.

The remaining $12.2 million is allocated to three additional programs:

* Vermont has allocated a total of $5.9 million to its Commercial Loan Participation Program, which provides financing for the purchase of land; construction and renovation of facilities; and purchase and installation of equipment for eligible projects.

* Vermont has allocated $3.0 million to its Technology Loan Participation Program. This initiative supports loans to early-stage firms, primarily in the information technology and bioscience sectors.

* Vermont has also allocated $3.3 million to its Small Business Loan Program, which finances smaller commercial businesses’ fixed asset and working capital needs.

GoodBiz113's Take
Once again, the Obama Administration has taken bold and positive steps to fuel small-business growth and create jobs. Current and would-be small-business owners in Connecticut, Missouri and Vermont -- and their myriad stakeholders -- are fortunate that Secretary Geithner and his advisers have exercised their fiduciary pragmatism and wide-angle vision to promote far-reaching entrepreneurship and economic development in their states.

SOURCES: Connecticut Development Authority, Missouri Department of Economic Development, U.S. Department of the Treasury, Vermont Economic Development Authority

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Business Proposals: It's All About Trust. ^AF

President Obama Signs Small Business Jobs Act; Here's What's in It

"I’m thrilled to be here on what is an exciting day," said President Obama as he prepared to sign the Small Business Jobs and Credit Act of 2010 [H.R. 5297] this afternoon. With small-business owners who will receive tax breaks and better access to credit in the audience, the President explained to everybody why he has fought so long for it:

"Now this is important because small businesses produce most of the new jobs in this country," he noted. "They are the anchors of our Main Streets. They are part of the promise of America: the idea that, if you’ve got a dream and you’re willing to work hard, you can succeed.

"That’s what leads a worker to leave a job to become her own boss. That’s what propels a basement inventor to sell a new product, or an amateur chef to open a restaurant. It’s this promise that has drawn millions to our shores and made our economy the envy of the world."

The bill includes a series of small-business proposals that the President put forth earlier this year, and small businesses will start benefiting from the bill on Day 1. Among the many important provisions in the bill, 12 of the top benefits to small businesses are:

* Extension of Successful SBA Recovery Loan Provisions -- Immediately Supporting Loans to More 1,400 Small Businesses: With funds provided in the bill, SBA will begin funding new Recovery loans within a few days of the President’s signature, starting with the more than 1,400 businesses -- with loans totaling more than $730 million -- that are waiting in the Recovery Loan Queue. In total, the extension of these provisions provides the capacity to support $14 billion in loans to small businesses. The SBA Recovery loan provisions have already supported $30 billion in lending to over 70,000 small businesses.

* More Than Doubling of the Maximum Loan Size for the Largest SBA Programs: The bill also increases the maximum loan size for SBA loan programs which, in the coming weeks, will allow more small businesses to access more credit to allow them to expand and create new jobs. The bill will permanently raise the maximum size for SBA’s two largest loan programs -- increasing the maximum 7[a] and 504 loans from $2 million to $5 million, and the maximum 504 manufacturing-related loan from $4 million to $5.5 million. In addition, it will temporarily increase the maximum loan size for SBA Express loans from $350,000 to $1 million -- providing greater access to working capital loans that small businesses use to purchase new inventory and take on their next order, allowing them to create new jobs.

* A New $30 Billion Small Business Lending Fund: The bill would establish a new $30 billion Small Business Lending Fund which, by providing capital to small banks with incentives to increase small business lending, could support several multiples of that amount in new credit.

* An Initiative to Strengthen Innovative State Small Business Programs -- Supporting Over $15 Billion in Lending: The bill will support at least $15 billion in small-business lending through a new state Small Business Credit Initiative, strengthening state small-business programs that leverage private-sector lenders to extend additional credit -- many of which have been forced to cut back due to budget cuts.

* Eight New Small Business Tax Cuts -- Effective Today, Providing Immediate Incentives to Invest: The President had already signed into law eight small-business tax cuts. Today, he is signing into law another eight new tax cuts that go into effect immediately.

* Zero Taxes on Capital Gains from Key Small Business Investments: Under the Recovery Act, 75 percent of capital gains on key small-business investments this year were excluded from taxes. The Small Business Jobs Act temporarily puts in place for the rest of 2010 a provision called for by the President: elimination of all capital gains taxes on these investments if held for five years. Over one million small businesses are eligible to receive investments this year that, if held for five years or longer, could be completely excluded from any capital gains taxation.

* Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments: The bill increases for 2010 and 2011 the amount of investments that businesses would be eligible to immediately write off to $500,000, while raising the level of investments at which the write-off phases out to $2 million. Prior to the passage of the bill, the expensing limit would have been $250,000 this year, and only $25,000 next year. This provision means that 4.5 million small businesses and individuals will be able to make new business investments today and know that they will earn a larger break on their taxes for this year.

* Extension of 50% Bonus Depreciation: The bill extends -- as the President proposed in his budget -- a Recovery Act provision for 50 percent "bonus depreciation" through 2010, providing two million businesses, large and small, with the ability to make new investments today and know they can receive a tax cut for this year by accelerating the rate at which they deduct capital expenditures.

* A New Deduction of Health Insurance Costs for Self-Employed: The bill allows two million self-employed to know that, on their taxes for this year, they can get a deduction for the cost of health insurance for themselves and their family members in calculating their self-employment taxes. This provision is estimated to provide over $1.9 billion in tax cuts for these entrepreneurs.

* Tax Relief and Simplification for Cell Phone Deductions: The bill changes rules, so that the use of cell phones can be deducted without burdensome extra documentation -- making it easier for virtually every small business in America to receive deductions that they are entitled to, beginning on their taxes for this year.

* An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses: The bill temporarily increases the amount of start-up expenditures that entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 [with a phase-out threshold of $60,000 in expenditures], offering an immediate incentive for someone with a new business idea to invest in starting up a new small business today.

* A Five-Year Carryback of General Business Credits: The bill would allow certain small businesses to "carry back" their general business credits to offset five years of taxes -- providing them with a break on their taxes for this year, while also allowing these credits to offset the Alternative Minimum Tax, reducing taxes for these small businesses.

* Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business: The bill would change, beginning this year, the penalty for failing to report certain tax transactions from a fixed dollar amount -- which was criticized for imposing a disproportionately large penalty on small businesses in certain circumstances -- to a percentage of the tax benefits from the transaction.

GoodBiz113's Take: After months of stall tactics -- by too many mean-spirited, just-say-no House Republicans who don't want this country to succeed under President Obama's Administration, regardless of how logical its proposed policies are -- the Small Business Jobs and Credit Act of 2010 is finally in place. Here's to moving forward -- for current and would-be small-business owners and the greater good... Cheers!

SOURCES: Internal Revenue Service, Library of Congress, U.S. Small Business Administration, The White House
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