The goal of the new law, which passed the Senate on September 16 and is expected to pass the House and then be signed into law any day now, is to help small businesses create 500,000 jobs. According to the NFIB and to common sense, this likely won’t happen. But the new law does have $12 billion in tax breaks that could benefit certain businesses. Here’s a quick rundown of how you may be able to lower your tax bill:
- Self-employed tax savings. Until now self-employed individuals could not reduce their self-employment tax by the amount of medical insurance premiums they paid to cover themselves, their spouses and dependents (although premiums for staff are a deductible business expense). Under the new law, for 2010 only, they can. For instance, if you are self-employed and pay $10,000 in premiums this year, you’ll save about $1,500 in self-employment tax.
- Increased write-offs for certain business investments. Under the so-called Section 179 deduction rule, if you buy new or pre-owned equipment and machinery, you can deduct up to $500,000 in 2010 and 2011 rather than depreciate the cost over a number of years. The dollar limit phases out when total equipment purchases for the year exceed $2 million. Eligible equipment includes off-the-shelf software and, for the first time, qualified leasehold, restaurant, and retail improvements up to $250,000 in 2010 and 2011. In addition, you can claim bonus depreciation on new equipment purchases, which amounts to an additional 50% deduction in excess of any Section 179 deduction claimed.
- Increased exclusion for qualified small business stock gains. If you invest in a small C corporation after the date of enactment and before January 1, 2011, you won’t pay any capital gains when you sell the stock as long as you’ve held it for at least five years.
- Increased write-off for start-up costs. Instead of being able to deduct up to $5,000 of start-up costs in the first year of business, you can deduct up to $10,000 for costs this year. The dollar limit phases out when total start-up costs exceed $60,000, but very few small business start-ups have initial costs that approach this figure.
To help pay for these tax breaks, businesses of all sizes (no small business exemption) that are recipients of rental income will have to report payments to service providers (e.g., painters, plumbers, accountants) of $600 or more in a year, starting in 2011.
Will any of these new tax breaks help you? Do any inspire you to create jobs? Please let me know.