Summary of Business Tax Law Changes 2010-2017
Many of the breaks in recent tax relief bills are designed to be phased in over a number of years. To help you determine how these tax laws might affect your long-term plans, we'll explain the changes that come into effect through 2017. With more tax law changes enacted by Congress at the end of 2010, check TurboTax regularly for updates.
Select a year to see what tax changes will affect that year's returns. We include changes that went into effect in 2010 because they will likely affect returns filed in the spring of 2011.
Starting in 2010
Payroll Tax Credit
For 2009 and 2010, Congress gave workers a credit of 6.2% of their earned income, capped at $400 for single filers and $800 for joint filers. For single filers, it starts phasing out at $75,000 of Adjusted Gross Income and dries up at $95,000. The phaseout zone for couples is $150,000 to $190,000. While employees get the credit in advance via lower income tax withholding in each paycheck, self-employeds can reduce their quarterly estimated payments to get an advance benefit from the credit. The exact amount of the payroll tax credit for the year will be calculated on the filers’ tax returns
Self-Employment Tax Contribution Base Unchanged
The maximum amount of self-employment income subject to Social Security taxes remains at $106,800 in 2010, unchanged from 2009. The self-employment tax rate remains 15.3%.
Social Security Tax Contribution Base Unchanged
The maximum amount of wages subject to Social Security tax remains at $106,800. The tax rate remains 7.65% on employers and employees.
Business Standard Mileage Rate Drops
The standard business mileage rate is 50 cents per mile, down 5 cents per mile from the allowance that applied for business driving in 2009. Remember that you can deduct the cost of parking and tolls in addition to the mileage allowance.
Tax-Free Parking for Employees
Companies can pay for $230 a month of parking tax-free for employees, unchanged from 2009. The cap on tax-free transit passes is now $230 a month as well, the same as for parking.
Bonus First-Year Depreciation
The first-year depreciation bonus that businesses can take on new assets put in use was increased to 100% from 50% for qualified investments made after September 8, 2010, through the end of 2011. In other words, they can write off the entire cost of the asset up front. Smaller firms can first claim expensing and then use the 100% bonus. If you buy used assets, no 100% write-off is allowed.
Assets depreciated over 20 years or less are eligible, including machinery, equipment, land improvements and farm buildings, even leasehold improvements made to the interior of commercial realty. But this special write-off is not available for other buildings. Autos and light trucks also benefit if they are used for business. The maximum first-year write-off for them remains at $11,060. However, this is only for vehicles that are put in service during 2010.
Carrybacks of Net Operating Losses
Businesses with average annual gross receipts can carry back net operating losses from the 2008 and 2009 tax years for a maximum of five tax years. The carryback period is usually two years.
Estimated Tax Relief for Owners of Small Businesses
If an individual’s Adjusted Gross Income for 2009 was less than $500,000, and more than half of gross income was from a business with fewer than 500 workers, the owner’s estimated income taxes for 2010 estimated payments can be based on the lesser of 90% of tax liability for 2010 or 100% of the liability for 2009. The usual estimated tax benchmarks of 100% or 110% of tax liability do not apply.
Wind Energy Credit
The $4,000 annual ceiling on a business tax credit for wind energy turbines was repealed. The credit is for 30% of the cost of wind energy turbines of 100 kilowatts or less.
Higher Section 179 Expense Deduction
The maximum amount of equipment placed in service in 2010 that businesses can expense was raised to $500,000 by the Small Business Jobs Act of 2010, an increase of $250,000 over the maximum for 2009. The annual investment limit was raised to $2 million for 2010. Thus, you won't begin to lose the benefit of expensing until you place more than $2 million of assets in service in 2010.
Domestic Production Activities Deduction
Starting in 2010, this deduction increases to 9% of qualifying business net income from domestic production activities. This deduction applies to businesses engaged in construction, engineering or architectural services; film production; or the lease, rental or sale of equipment manufactured in the United States. However, the rate remains at 6% for oil and gas companies.
The R & D Tax Credit
The credit for increasing spending on research and development was extended through the end of 2011.
Limits on Deducting Farm Losses
Beginning in 2010, the amount of farm losses you can enter to offset nonfarm income is capped at the greater of $300,000 or your net farm income over the past five years. But this limit will apply only if you get federal farm payments or Commodity Credit Corporation (CCC) loans. You can take suspended losses in later years. The caps will also apply to partners and S firm owners.
Starting in 2011Self-Employment Tax Reduced
Self-Employment Tax Reduced
The maximum amount of self-employment income subject to Social Security taxes remains at $106,800 in 2011, unchanged from 2010. However, the self-employment tax rate is reduced to 10.4% from 15.3%.
Social Security Tax Reduced for Employees
The maximum amount of wages subject to Social Security tax remains at $106,800. However, the tax rate on employees for 2011 is reduced to 4.2% from 6.2% while the tax rate on employers remains at 6.2%.
Payroll Tax Credit
The credit of 6.2% of earned income, capped at $400 for single filers and $800 for joint filers, no longer applies.
Increased Section 179 Expense Deduction
The maximum amount of newly-purchased assets that a business is allowed to expense remains at $500,000 for 2011. The annual investment limit remains at $2 million.
Starting in 2012
Withholding on Government Contracts
Starting in 2012, amounts paid out under government contracts will be subject to 3% tax withholding. This will affect contracts with the federal government, state governments and any municipality that pays out $100 million or more on contracts a year. Interest and payments for real estate are exempted.
Starting in 2014
Energy-saving Improvements to Commercial Real Estate
The special expensing allowed for the cost of energy-saving improvements to commercial buildings is not available after 2013.
Starting in 2017
Reduced Section 179 Expense Deduction
The maximum amount of newly-purchased assets that a business is allowed to expense is reduced to $125,000 for 2012. The annual investment limit is reduced to $500,000
Solar Heating Credit
The 30% tax credit for businesses on the cost of solar heating units and fuel cells falls to 10% for those that are placed in service after 2016.
