Confused about what to do as you gather your boxes of receipts and prepare for the dreaded tax deadline in the coming months? This past year has brought several tax changes affecting small business owners, capped by President Obama's Dec. 17, signing of the tax-cut extension law.
Even as you prepare your 2010 taxes, consider also looking ahead to make investments in equipment or other fixed assets before Dec. 31, 2011. The Small Business Jobs Act enacted in September doubles the Section 179 expense limitation to $500,000 for fully writing off fixed assets the year they were acquired. This specific tax break is applicable to 2010 and 2011 tax returns. Eligible investments include office furniture and equipment, machinery and computer software. Another provision from the same law allows 100 percent writeoffs of up to $250,000 of qualified real property such as leasehold improvements and some restaurant and retail improvements.
Everspark Interactive, an eight-person Atlanta search-engine-optimization marketing company, increased investments in video and broadcasting equipment and software because of the new tax break, according to co-founder Jason Hennessey.
The new legislation was also good news for entrepreneur Guy Brami, who has had his eye on a computer-controlled cutting machine, a couple of cranes and a large-format flatbed printer for Gelberg Signs, the Washington, D.C., sign fabricator he owns with two brothers.
The combined price tag for Brami's list tops $300,000, a sizable chunk for a 25-employee company, so he'll likely spread out the investments over the next year. "It's an incentive to make investments that we may otherwise put off," he says.
But don't delay past 2011. The tax-deductible amount will return to 50 percent in 2012.
And for business owners planning to invest more than $500,000 in equipment, making that purchase in 2011 will also ease your tax burden. That's because the new law allows a 100 percent write-off (double what it was previously) of the bonus depreciation allowed for business investments in plant and equipment that exceed $500,000.
The benefit of getting 100 percent depreciation can be substantial. For instance, if a professional service corporation subject to a flat tax of 35 percent invested $500,000 in computers, software and office furniture, it could reduce its federal tax bill by 35 percent of that amount. "So the total benefit potentially is $175,000 to that professional service corporation," says Neil Becourtney, a CPA with accounting firm J.H. Cohn LLP in Roseland, New Jersey.