Tax Law Changes for 2010 – What’s New for Your Small Business

My last post included information about new tax laws that impact your 2009 business tax return, but the 2010 tax year also brings
with it several changes to business tax law.

Tax laws often define and support your small business
investment and growth strategies. So,
it’s important to take stock now, and assess how your business can comply with,
and benefit from the changes that apply to the 2010 tax year.

Below is a summary of the major changes in federal income
tax law that can impact your business in 2010. While some of these laws are
already legislated and in the public domain; more may follow, driven by
political and economic factors. This is not a comprehensive list, so be sure to
talk to your tax advisor if you have questions about how your small business is
affected. You can also refer to several informative online resources including the
2010 Small Business Tax Center
on Business.gov or the IRS’s
Small Business and Self-Employed Tax Center
.  

To help you plan and manage your tax obligations throughout
the year, the IRS has also provides an online Tax
Calendar for Small Businesses and the Self-Employed
(the print calendar is
now sold out).

2010 Tax Law Changes
that Impact Small Business

Major changes include:

  • Cancellation
    of Business Debt –
    This change was first implemented under the American
    Recovery and Reinvestment Act (ARRA) in 2009 and enables certain businesses to elect to delay recognition of income from
    the cancellation of business debt in both 2009 and 2010. Income recognition can
    be deferred until the 5th year after the reacquisition, and then the income is
    included ratably over the following five years. If you wish to elect this
    option refer to the guidelines from the IRS here.
  • Domestic
    Production Activities Deduction –
    In 2010 this deduction increases to nine
    percent of qualifying business net income. “Domestic production” applies to a
    restricted group of businesses including construction, engineering or
    architectural firms. The IRS has more information on this deduction and
    eligibility here.
  • Updated
    Mileage Rates
    – Standard mileage rates for the business use of vehicles has
    been reduced slightly for 2010.
    Beginning on Jan. 1, 2010, the standard mileage rate for the use of a
    car (also vans, pickups or panel trucks) is:
  • 50 cents per mile for business miles
    driven
  • 16 cents per mile driven for medical or
    moving purposes
  • 14 cents per mile driven in service of
    charitable organizations (no change)
  • First-Time
    Buyers with
    Home-Based Businesses -
    If you purchase a first-time home and choose to operate your business from that
    home you can still qualify for an $8,000 tax credit – if you purchase your home
    before April 30, 2010. The IRS has more information about eligibility here.

  • R&D
    Tax Credit
    – This tax credit for research and development was set to expire
    after 2009, but the House of Representatives has since voted
    for its extension
    , effectively pushing $31.1 billion in expiring tax
    provisions through 2010. Keep an eye on
    this one here
    as it pushes on to the Senate.
  • Section
    179 Expense Deduction due to be Phased Out
    - The increases in the Section 179
    Expense Deduction
    , first introduced by President Bush in 2008, phases out
    completely in 2010. Small business had been able to deduct up to $250,000 of
    the cost of machinery, equipment, vehicles, furniture and other qualifying
    property placed in service during 2009. In 2010, this limit is due to drop to
    $135,000.
  • Payroll
    Tax Changes
    – The maximum amount of wages subject to Social
    Security tax
    will remain the same as 2009 at $106,800. As in prior years,
    there is no limit to wages subject to the Medicare Tax; therefore, all covered
    wages are still subject to the 1.45% tax. The FICA tax rate, which is the
    combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%,
    remains at 7.65% for 2010. The maximum social security tax that employees and
    employers will each pay in 2010 is $6,621.60.

These
are just some of the changes for tax year 2010 – visit the IRS’s Tax Changes
for Business
site for updates now and throughout the year.

Additional Resources

  • Get instant access to IRS tax info with the new Business.gov “Tax Info Gadget“. Add it to your Web site or iGoogle page.
  • Managing Your Small
    Business Taxes
    – Resources from Business.gov that explain tax obligations
    that all business owners should work into their regular operations.
  • Tax Help and Training
    for Small Business
    – Free training and programs (online and in-person) to
    help small business owners understand their federal and state tax obligations.