Sweeter tax incentives arrive just in time
The Small Business Jobs and Credit Act provides numerous tax incentives targeted to small business owners. Here are some key provisions that may benefit agriculture:
• Enhanced Section 179 depreciation deductions: The maximum deduction is raised to $500,000 for 2010 and 2011, with a phase-out threshold of $2 million.
Eligible assets include computers, office equipment and furniture. Certain real estate improvement costs now qualify for Section 179 deductions of up to $250,000.
• “Bonus depreciation” is back: The bonus depreciation tax break, which expired after 2009, was restored for 2010. A business may claim a deduction equal to 50% of the cost of qualified assets, including vehicles.
An extra year of bonus depreciation through 2011 is allowed for property with a cost recovery period of 10 years or more. Qualifying new assets must be placed in service by Dec. 31, 2010.
• The Small Business Jobs and Credit Act to boost ’10 tax deductions.
• Section 179 and bonus depreciation may be the biggest benefit.
• Startup expense deductions have been doubled for 2010 only.
If you can take advantage of both the Section 179 deduction and 50% first-year bonus depreciation, the combination can offset a large part — perhaps all — of a major acquisition for the year.
“The opportunity is there to invest in equipment for next season,” notes Chuck Hoober, president of Hoober Inc., headquartered at Intercourse, Pa.
But, he adds, “Always consult your accounting, tax and legal professionals beforehand to determine exactly how these deduction limits on equipment purchases can help your business.”
• Startup expense deductions increase: The new law doubles maximum deduction for 2010 to $10,000, with a $60,000 phase-out threshold. But the figures revert back to prior amounts in 2011.
• Restrictions on business credits removed: With limited exceptions, general business credits can’t be used to offset a taxpayer’s alternative minimum tax, or AMT, liability. The new law removes this restriction for “eligible small businesses.”
That’s no problem for most farm corporations, partnerships or proprietorships, as gross receipts for the prior three years can’t exceed $50 million.
And beginning in 2010, an eligible small business may carry back general business credits for five years instead of one.
• Better tax treatment for small-business stock: Assuming certain requirements are met, an investor in “qualified small-business stock” may exclude part of the gain from the sale of the stock after a five-year holding period.
The 2009 stimulus law increased that exclusion to 75% for acquisitions after Feb. 17, 2009 and before Jan. 1, 2011. The new law allows a 100% exclusion for acquisitions from Sept. 27, 2010 through Dec. 31, 2010.
• Cell-phone recordkeeping less burdensome: Under the old law, you had to track business and personal use of cell phones and similar communications devices to claim deductions. The new law removes that requirement and treats employer-provided devices as tax-free fringe benefits.
• Health insurance break for the self-employed: A self-employed individual must pay self-employment tax comparable to the Social Security tax paid on employee wages.
For 2010 only, eligible self-employed people can deduct health insurance premiums from the self-employment income subject to employment tax.
• Easier Roth contributions: Beginning in 2011, participants in state and local government-operated 457 plans (other than nonprofits) can contribute deferred amounts to Roth accounts. Participants in 401(k) and 403(b) plans already have this ability.
For 2010 rollovers, you can opt to have the taxable income split between 2011 and 2012.
The tax information was provided courtesy of Stambaugh Ness, financial consultants headquartered in York, Pa.
This article published in the December, 2010 edition of AMERICAN AGRICULTURIST.