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Monday, October 11, 2010
Major tax breaks and access to capital in new jobs bill
In an attempt to jumpstart business activity, a new small business jobs bill was passed that has several attention-getting provisions that add new twists to some old tax breaks. Also, this bill contains a $30 billion small business lending feature targeted to small and mid-sized community banks.
Substantial increase in popular business equipment write-off for 2010 and 2011
While certainly not new, the increase in the amount of this tax break is stunning. As you know, business asset purchases normally must be depreciated over a period of time. However, the tax code allows a business to elect to expense (immediately write-off) the purchases which yields an immediate tax deduction and large tax savings. In 2010, the ceiling on immediate write-off was $250,000, but, was scheduled to significantly decrease after 2010.
Small Business Jobs Act: The small business bill retroactively doubles the 2010 expensing amount to $500,000 of equipment purchases and applies to 2011 as well.
First time ever: tax break for certain real estate improvements
Effective immediately and retroactive to all of 2010 as well as 2011, and, for the first time ever, the first $250,000 of real property improvements to leased property, restaurant property and improvements to retail-business property can be applied against taxable income in the year the cost is incurred. (Typically, these costs are recouped using long depreciation periods.) This has never happened!
Back in play: large bonus depreciation
New life! Given up for dead with its expiration after 2009, this new legislation retroactively allows for “bonus depreciation” equal to 50% of the cost of equipment purchased in 2010 and 2011. Any cost left over after bonus depreciation can be deducted under the normal depreciation write-off rules. NOTE: Bonus depreciation is taken AFTER the equipment expensing election discussed above. This potentially allows the majority of the cost of equipment purchased in 2010 and 2011 to offset taxable income.
Sole proprietors can deduct health insurance on Schedule C in 2010
Small businesses that operate as unincorporated sole proprietors have never been able to deduct the cost of health insurance in calculating the 15.3% self employment tax. Instead, only one-half the insurance cost was deducted as an above the line deduction. The Small Business Jobs bill moves the deduction to Schedule C where it reduces self-employment tax.
Access to credit for small business
In an attempt to stimulate lending to the small business community, the bill creates a $30 billion Small Business Lending Fund that will make capital available solely for small business lending by local and mid-market community banks.
The interesting part of this program is that community banks have a huge incentive to loan the money because the banks repayment rate to the feds is tied to increased lending to small business. Participating banks can lower their rate by increasing small business lending by 10 percent over the previous year.
1099 reporting requirements failed to make the cut.
Included among the controversy of health care reform is expanded reporting requirements of all payments received from vendors beginning in 2012. It has been a major target of repeal by virtually all the small business sector. A repeal of the very unpopular expanded 1099 reporting requirements did not make it into this bill as two separate amendments were defeated.
NOTE: The battle over this issue is far from over and will receive major attention in virtually all proposed legislation in the coming year.
Expiring tax cuts: what’s the latest?
It’s looking more like the decision on expiring Bush-era tax breaks will occur after the November elections. There seems to be consensus on both sides that many of the tax breaks will be extended. The disagreement in Congress is on the tax breaks for upper-incomers: should they be extended or expire. Also included in this debate is what to do about the estate tax which is scheduled to increase in 2011 to significantly higher tax rates.
Tax Planning: Capital gain, dividend and income tax rates
Because we may not know until December whether these rates expire or not, you’ll want to have scenarios ready for stock sales, paying or deferring bonuses and expenditures so that you make the right choices as the tax rates become available.
The information contained herein is general in nature and is not intended as legal, accounting or tax advice or opinion as provided by National Write Your Congressman. The reader should seek professional guidance prior to taking any action based upon this information. National Write Your Congressman shall have no obligation to inform the reader of any changes in tax laws or others which may affect the information provided.
Monday, October 11, 2010
Major tax breaks and access to capital in new jobs bill
In an attempt to jumpstart business activity, a new small business jobs bill was passed that has several attention-getting provisions that add new twists to some old tax breaks. Also, this bill contains a $30 billion small business lending feature targeted to small and mid-sized community banks.
Substantial increase in popular business equipment write-off for 2010 and 2011
While certainly not new, the increase in the amount of this tax break is stunning. As you know, business asset purchases normally must be depreciated over a period of time. However, the tax code allows a business to elect to expense (immediately write-off) the purchases which yields an immediate tax deduction and large tax savings. In 2010, the ceiling on immediate write-off was $250,000, but, was scheduled to significantly decrease after 2010.
Small Business Jobs Act: The small business bill retroactively doubles the 2010 expensing amount to $500,000 of equipment purchases and applies to 2011 as well.
First time ever: tax break for certain real estate improvements
Effective immediately and retroactive to all of 2010 as well as 2011, and, for the first time ever, the first $250,000 of real property improvements to leased property, restaurant property and improvements to retail-business property can be applied against taxable income in the year the cost is incurred. (Typically, these costs are recouped using long depreciation periods.) This has never happened!
Back in play: large bonus depreciation
New life! Given up for dead with its expiration after 2009, this new legislation retroactively allows for “bonus depreciation” equal to 50% of the cost of equipment purchased in 2010 and 2011. Any cost left over after bonus depreciation can be deducted under the normal depreciation write-off rules. NOTE: Bonus depreciation is taken AFTER the equipment expensing election discussed above. This potentially allows the majority of the cost of equipment purchased in 2010 and 2011 to offset taxable income.
Sole proprietors can deduct health insurance on Schedule C in 2010
Small businesses that operate as unincorporated sole proprietors have never been able to deduct the cost of health insurance in calculating the 15.3% self employment tax. Instead, only one-half the insurance cost was deducted as an above the line deduction. The Small Business Jobs bill moves the deduction to Schedule C where it reduces self-employment tax.
Access to credit for small business
In an attempt to stimulate lending to the small business community, the bill creates a $30 billion Small Business Lending Fund that will make capital available solely for small business lending by local and mid-market community banks.
The interesting part of this program is that community banks have a huge incentive to loan the money because the banks repayment rate to the feds is tied to increased lending to small business. Participating banks can lower their rate by increasing small business lending by 10 percent over the previous year.
1099 reporting requirements failed to make the cut.
Included among the controversy of health care reform is expanded reporting requirements of all payments received from vendors beginning in 2012. It has been a major target of repeal by virtually all the small business sector. A repeal of the very unpopular expanded 1099 reporting requirements did not make it into this bill as two separate amendments were defeated.
NOTE: The battle over this issue is far from over and will receive major attention in virtually all proposed legislation in the coming year.
Expiring tax cuts: what’s the latest?
It’s looking more like the decision on expiring Bush-era tax breaks will occur after the November elections. There seems to be consensus on both sides that many of the tax breaks will be extended. The disagreement in Congress is on the tax breaks for upper-incomers: should they be extended or expire. Also included in this debate is what to do about the estate tax which is scheduled to increase in 2011 to significantly higher tax rates.
Tax Planning: Capital gain, dividend and income tax rates
Because we may not know until December whether these rates expire or not, you’ll want to have scenarios ready for stock sales, paying or deferring bonuses and expenditures so that you make the right choices as the tax rates become available.
The information contained herein is general in nature and is not intended as legal, accounting or tax advice or opinion as provided by National Write Your Congressman. The reader should seek professional guidance prior to taking any action based upon this information. National Write Your Congressman shall have no obligation to inform the reader of any changes in tax laws or others which may affect the information provided.
Thank you for being a responsible American; your voice is making a difference.
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The Governor's Debate was last week, now we turn to IA-02 for Congress.
It will be interesting on Tuesday, October 12Th at Mt. Mercy University to see the debate in IA-02. For more information on the debate:
Next up, the race for Congress in Iowa — specifically, the state’s 2Nd Congressional District seat ...
Vote now or on Tuesday, November 2Nd in Iowa.
Time to get started with the first full week of October 2010 ...
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