Tax laws often define and support your small business, real estate investment and growth strategies. So, it’s important to take stock now, and assess how your business can comply with, and benefit from the changes that apply to the 2010 tax year.   

Below is a summary of the major changes in federal income tax law that can impact your business in 2010. While some of these laws are already legislated and in the public domain; more may follow, driven by political and economic factors. This is not an exhaustive list, so be sure to talk to your CPA or Tax Attorney if you have questions about how your small business or real estate investments are impacted.

Major 2010 changes include:

  • Cancellation of Business Debt – This change was first implemented under the American Recovery and Reinvestment Act (ARRA) in 2009 and enables certain businesses to elect to delay recognition of income from the cancellation of business debt in both 2009 and 2010. Income recognition can be deferred until the 5th year after the reacquisition, and then the income is included ratably over the following five years.
  • Updated Mileage Rates – Standard mileage rates for the business use of vehicles has been reduced slightly for 2010. Beginning on Jan. 1, 2010, the standard mileage rate for the use of a car (also vans, pickups or panel trucks) is:
  • 50 cents per mile for business miles driven
  • 16 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations (no change)
  • First-Time Buyers with Home-Based Businesses – If you purchased a first-time home (and choose to operate your business from that home) you can still qualify for an $8,000 tax credit  but only if you purchased the home before April 30, 2010.  
  • Section 179 Expense Deduction due to be Phased Out – The increases in the Section 179 Expense Deduction, first introduced by President Bush in 2008, phases out completely in 2010. Small business had been able to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009. In 2010, this limit is due to drop to $135,000.
  • ·         Payroll Tax Changes – The maximum amount of wages subject to Social Security tax will remain the same as 2009 at $106,800. As in prior years, there is no limit to wages subject to the Medicare Tax; therefore, all covered wages are still subject to the 1.45% tax. The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, remains at 7.65% for 2010. The maximum social security tax that employees and employers will each pay in 2010 is $6,621.60.

Health Care Bill Passes and Includes Immediate Funding For IRS to Hire 16,000 new IRS Agents  – Yes, I said thousand!     This means that audits will be increasing and the groups looked most closely are those with the most deductions.   This means those with real estate investments and self-employed individuals have always had a higher risk of audit and thus, now their risk is much higher than the average W-2 filer.   As such, these individuals are best advised to have their last three years tax returns reviewed by a professional CPA or Tax Attorney.    Why the last three years?   Because the statute-of-limitations on your tax return runs three years from the date it was filed.  Any mistakes, once you sign and date your tax return, are your responsibility, whether the return was prepared for you by a tax preparer or not!   This means you are liable for any interest and penalties.  If there is a substantial failure to report income (and the IRS deems this to be intentional tax avoidance) the IRS could also open a criminal investigation.   Thus, this is a serious matter which most individuals have not taken seriously since the risk of audit was not as high in the past.    Additionally, the failure to file a tax return is a crime and the statute of limitations never runs on unfiled tax years, which means you can be audited anytime on these returns.    It is better to have the returns reviewed and amend errors on past returns to correct them right away before the IRS decides to audit you.    It is also better to file past year returns that remain unfiled before you are contacted by the IRS.     Take your business investments seriously.   Paying more to have a CPA or Tax Attorney to review past years and file future years taxes will probably save you money and a lot of headaches down the road.