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Key Tax Benefits in the 2010 Jobs Act

Congress recently enacted The Small Business Jobs Act of 2010, which contains a number of tax breaks and incentives for business taxpayers.  Most are either extended or expanded deductions that are allowed under current law.

The provisions of interest to most taxpayers include:

Increased Expensing of Fixed Assets (Section 179)
Current law allowed businesses to expense the cost of certain capital property, including equipment and machinery up to an annual limit of $250,000.  The Act retroactively increases this limit to $500,000, which will also apply for tax years beginning in 2011.

Extension of Bonus Depreciation
Businesses have also recently been allowed to write-off 50% of capital expenditures in the year of purchase, but this item expired at the end of last year.  The Act reinstates the 50% bonus depreciation for 2010 and extends it into 2011 as well.

Deduction for Start-Up Costs
Partially due to persistent high unemployment figures, more and more new, small businesses are being formed by these new entrepreneurs.  Under current law, expenses incurred before a business begins were deductible to a limit of $5,000.  These expenses include items such as attorney fees, research studies, feasibility analyses and other items to investigate and actually create a new business.  The Act doubles the amount that is deductible up to $10,000 for 2010.  In 2011, the limit drops back to $5,000 (unless extended by future legislation.

Deduction of Health Insurance in Determining Self-Employment Tax (SE Tax)
For a number of years, self-employed business owners have been allowed a write-off for the payment of health insurance premiums to cover themselves and dependents.  This deduction, however, was not allowed in determining the 15.3% SE tax.  In essence, business owners had to pay the SE tax on income that was used to purchase insurance.  For 2010, the Act will allow business owners to deduct the health insurance premiums for both income tax and SE tax.  For now, this provision will apply only for this year.

Over the next several months, we expect more tax changes to address the sunset of the Bush-era tax cuts and the reinstatement of the Estate Tax.  We will stay on top of these changes and keep you informed.  In the meantime, we welcome your calls and questions.

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