On September 27, 2010 President Barack Obama signed the 2010 Small Business Jobs Act which contains many tax changes impacting individuals as well as small businesses.
Bonus Depreciation:  Generally, taxpayers can currently deduct 50% of the cost of most new tangible personal property placed in service in 2010. Not all property qualifies, so you should consult your tax advisor for specifics.  Passenger cars acquired in 2010 are eligible for $8,000 of bonus depreciation in addition to the otherwise allowable depreciation. An election must be made if bonus depreciation is not taken.

Start-Up Expenditures:  Under prior law, new businesses could deduct up to $5,000 of start-up expenditures in the year they began operations. The $5,000 limit was phased out dollar for dollar when total start-up expenditures exceeded $50,000. The new law allows taxpayers to deduct up to $10,000 in trade or business start-up expenditures with the phase-out beginning at $60,000.

Health Insurance deductible when computing self-employment tax:  Previously, health insurance costs for self-employed taxpayers were deductible for income tax purposes but not when computing self-employment tax.  For tax year 2010 only, the cost of health insurance for self-employed individuals, their spouses, dependents, and children who haven’t attained age 27 is deductible when computing net earnings for self-employment tax.

Onerous recordkeeping requirements eliminated for employer-provided cell phones:  For tax years prior to 2010, cell phones were categorized as “listed property” and required strict recordkeeping to substantiate business use. Beginning in 2010, cell phones and other similar telecommunications equipment (PDAs and Blackberry devices) are no longer “listed property” and the burdensome recordkeeping requirements and special depreciation rules for listed property do not apply.  Cell phones are now treated like other business property.

Increased information return penalties:  Prior law imposed a $50 per return penalty for each information return (for example, Form 1099) that was not filed on time, was missing information, or included incorrect information.  The maximum penalty for any calendar year could not exceed $100,000.  The new law creates a tiered penalty structure up to $100 per return penalty with the calendar year maximum penalty escalating to $1,500,000!  The new law is effective for information returns filed after December 31, 2010 which will include those due in January and February 2011!

  The 2010 Small Business Jobs Act also revises the penalty for failure to furnish a payee statement. The new law provides tiers and caps similar to those applicable to the penalty for failure to file information returns discussed above.

We are expecting (or at least hoping) Congress will pass additional tax legislation before year-end.  So, please check back to see what’s new.

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