October 2010 Archives

October 26, 2010

IRS Releases Draft Form for New Health Care Credit

The IRS released a draft of the form to be used for the new small business health care credit which is available starting in 2011. Small businesses will use the new Form 8941 to calculate the amount of the credit they are entitled to take. They will then include that amount as part of the general business credit they claim on their income tax return.

The health care credit was part of the Affordable Care Act passed in March. It is generally available to small employers that contribute an amount equal to at least half the cost of single coverage for health insurance for their employees. It is aimed at helping small businesses that employ moderate- and lower-income workers. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by the employer; it will increase to 50 percent of premiums paid in 2014. Businesses with 25 or more full-time employees or that pay average wages of $50,000 or more per year are not eligible to use the credit.

 For more information on the health care credit and to see a draft of Form 8941, go to the IRS website.

October 19, 2010

New 1099 Reporting Requirements for Landlords

In the past, only landlords whose rental activities qualified as a business were required to file Form 1099s with the IRS. However, starting in 2011, all landlords must comply 1099 reporting requirements, including those who are considered investors (not landlords) for other tax purposes. However, there are some important exceptions to this new rule. Investor-landlords who fall into one of the following groups are exempt from the new 1099 reporting requirements:
  • landlords who obtain substantially all of their rental income from renting their principal residence on a temporary basis
  • landlords whose annual rental income is less than a minimum amount (to be established by the IRS), and
  • other investor-landlords for whom complying with the reporting requirements would cause hardship. The IRS will adopt regulations providing guidelines on what constitutes a hardship.
  • The IRS can impose monetary penalties on landlords who fail to comply with the reporting requirements. The penalty is $250 for each 1099 you intentionally fail to file. The penalty is less if the failure is not intentional, ranging from $30 to $100, depending on how quickly you fix the error.
October 14, 2010

New Tax Breaks for Small Businesses

On September 27th, President Obama signed into law the Small Business Lending Fund Act of 2010. The law creates a lending fund for small businesses and also includes important tax breaks for small businesses. Some of the key tax breaks include:

Section 179 deduction increased. The Section 179 depreciation limit was increased from $250,000 to $500,000 for 2010 and 2011. Under this provision, small businesses can immediately deduct up to 100% of the cost of new or used equipment purchased in 2010 or 2011 up to the $500,000 limit. This includes any business items such as computers, trucks, machinery, and office furniture. The annual phase-out threshold for total equipment purchases was increased to $2,000,000.

Bonus depreciation extended. First-year bonus depreciation was extended for 2010 and 2011. This allows businesses to immediately deduct up to half of the cost of new business property purchased and placed in service in 2010 and 2011.

Start-up cost deduction increased. The start-up cost deduction for small businesses was increased from $5,000 to $10,000 for 2010 only. The phase-out threshold for the deduction was increased to $60,000 from $50,000.

New health insurance deduction for self-employed. When calculating their self-employment taxes and income, self-employed people can deduct the cost of health insurance they pay for themselves and their families (including their spouse, dependents, and any children under age 27).

Cell phones no longer listed property. Beginning with tax year 2010, cell phones are no longer considered "listed property" for IRS purposes. This means cell phones can be deducted without the burdensome documentation required for listed property.

For more information, see the White House press release on the new tax law.