By Eva Rosenberg
Many of the best business-related tax breaks were in the Small Business Jobs Act passed this fall but small — and mid-size — businesses also retained some benefits in the tax deal signed last week.
But some of these breaks will benefit truly small businesses more than others — and some will extend to what most of us consider mid-size or even larger companies. That’s because there are really two definitions of small business — the government’s more generous definition and the tighter definition most small business owners and watchers adopt.
First, there’s the government’s definition: A business with sales of $7 – $25 million, with up to 500 or 1,000 employees.
Second, there’s the more common definition that fits the average small firm: A business with sales of well under $2 million with up to 10 employees or freelancers.
Thinking in terms of average small business owner (definition #2), here are some tax breaks that have impact.
For starters, Section 179 depreciation is now so high ($500,000) that the average small business can write off all their asset and equipment purchases the year they buy them. That’s a plus because you can get an instant tax benefit from all your purchases (made after Sept. 8 of this year and before Jan. 1, 2012), instead of spreading the depreciation over three, five or seven years.
What’s more, certain real estate improvements, restaurant and retail purchases now qualify for the quicker write-off, too; in the past you could only write them off over five and seven years, or longer.
But a word of warning: if the assets are sold or discarded (think electronics) in less than their useful life, the Section 179 break must be recaptured. For instance, laptop computers seem to need updating or replacement within two to three years. But their lifespan for tax purposes is actually five years.
The second big break: If you started a business in 2010, you might be in luck. The one-time write off of start up costs double — for the 2010 tax year only — to $10,000.
Third: Health insurance may be deducted by small businesses. Normally, this is a deduction on the first page of the Form 1040. Just for 2010, you can reduce self-employment taxes and overall income taxes. For a small business-owner paying $800 per month for family coverage, that directly reduces self-employment taxes by at least $1,500.
Fourth (and this is a big headache reliever): Put away that call log! Cellphones were removed from listed property requirements. Small business taxpayers will no longer need to keep detailed logs of business vs. personal use for a cell phone.
Fifth: The extension of the COBRA credit to May 2010. This allowed many small businesses forced to lay off staff to help former staff keep health insurance for a while longer. The IRS subsidized 65% of the premiums for employers, allowing former employees to pay just 35%.
Readers, if you own a small business, which of these breaks will benefit you most?