IRS Incentives Provide Small Business Tax Help for 2011

At Tax Resolution Services, we help individuals and small businesses find a solution for their IRS tax problems. For a small business owner, this means not only spelling out the resolution process, but also the assessment and prevention of future tax issues down the road. It cannot be said enough that sound legal and financial advice helps to streamline operations and is key to small business success both in good times and in bad. In preparation for a new tax year, a CNN Money article “Own a business? 6 new tax breaks” reminds us of the six incentive programs under the Small Business Jobs Act that, if taken advantage of, could yield a business owner financial savings through credits and deductions. However, it’s important to act quickly as some of these programs are due to expire soon.

Health care tax credit: The Affordable Care Act (ACA), allows small businesses that pay at least half of their employee’s health coverage significant tax benefits:

The maximum credit goes to businesses with 10 or fewer full-time employees with annual wages that average $25,000 or less. The break phases out for firms with 25 employees or that pay average wages above $50,000.
For 2010 through 2013, the tax credit covers up to 35% of the money that a qualifying business spends on insurance premiums. In 2014, top tax credit bumps up to 50%.
Tax-exempt organizations can claim 25% in the first time period and 35% after that.
The credit is available for a maximum of six years: 2010 through 2013 and for any two years after that.

Self-Employed Health insurance deduction

If you are self-employed and pay for your own healthcare, you can now deduct insurance costs from your business profits and your self-employment taxes. Prior to the 2010 filing year this was not allowable.

‘Section 179′ provision

The “Section 179″ of the tax code allows businesses to write off the full amount of large qualifying equipment or computer software purchases or leases made in 2010 or 2011, up to $500,000 per business, per year. The benefit? This temporary change to Section 179 allows businesses to get more cash up front instead of capital expenditure deductions made over time.

Note: These programs begin to phase out in 2012, so in order to qualify for the Section 179 deduction for the 2011 tax year, the equipment must be purchased or leased and placed into service between January 1, 2011 and December 31, 2011.

Bonus depreciation extension: The government wants small business to “invest in themselves.”

Unlike Section 179, under the Bonus Depreciation Extension you can depreciate items even if your business is in the red for the year.

Bonus depreciation covers new equipment only, and can be taken in addition to a Section 179 write-off, if the item is eligible for both benefits.
You can depreciate “tangible property,” like buildings, machinery, vehicles, furniture, and equipment, as well as “intangible property,” such as patents, copyrights and computer software.
Businesses that bought a qualifying item after Sept. 8 can claim 100% of its cost (so long as it is used before Jan. 1, 2012).
Businesses that bought such items before Sept. 8 can claim 50% (so long as it is put into service before Jan. 1, 2013).
A business that spends more than $2 million in one year on qualifying capital will not be able to get the full benefit of the Section 179 write-off.
You can only take advantage of the full Section 179 write-off if your small business booked a profit. A Section 179 write-off cannot cause your business to “make or increase a loss” for the year.

Depreciation on a business car or truck:

If you bought a new car, van or truck for your business last year, you will be able to depreciate more than before.

For 2010, — $11,060 for a car, and $11,160 for a light duty truck or van. This figure includes an extra $8,000 bonus depreciation, on top of the usual first-year depreciation. The rules are different for SUV’s and heavy pickup trucks.

General Business Credit: If you are affected by the Alternative Minimum Tax (AMT), you may get a little break in 2010. Usually, general business credits do not apply toward the AMT calculation. But for 2010, deductions included in the “General Business Credit” part of the tax code are also allowable under the AMT. Applying these credits to your AMT will reduce what you owe under the AMT. Some that might impact small biz include a benefit for hiring someone unemployed, the costs for starting up an employer pension plan or the costs of employer-provided child care services.

Consult your tax professional to make sure purchases are prudent

While tax savings are often good for business, the first step should be to consult your tax professional to ensure your business is able to make any large capital purchases. Due to a slow economy, there may be less revenue from which to take any deductions against. Your CPA or tax attorney can analyze your situation and help you make an informed decision based on your individual business needs.

If tax debt relief is what your business needs, contacting a certified tax resolution specialist or tax attorney to handle your case will go a long way to putting this matter behind you so you can focus on making your business a success.

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