About 80 percent of businesses use a tax professional to keep their books in order. For the sole proprietor or the largest corporation, record maintenance can be tedious but also valuable as keeping good records can actually save a company money.
On the subject of finances and saving money, three new tax laws were enacted in 2010 and many of the provisions in them are designed to encourage investment and provide easier access to capital. The Hiring Incentives to Restore Employment (HIRE) Act was approved on March 18, the Small Business Jobs Act (SBJA) became law on September 27 and finally the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act was enacted on December 17, 2010.
All three of these laws contain provisions that will have an effect on business owners in 2010 and also for years to come. That said, and keeping in mind that many businesses these days are flow through entities (i.e. shareholders report income on their 1040) and operate on a fiscal year, here’s a quick look at what’s in each law:
Hiring Incentives to Restore Employment Act
Under the HIRE Act, two new benefits are available to employers who hire certain previously unemployed workers. The first provides eligible employers with a 6.2 percent payroll tax exemption for hiring that previously unemployed worker. The second is a tax credit of up to $1,000 for retaining that same qualified employee for at least one year.
Small Business Jobs Act
The SBJA is a bit more muscular than its HIRE counterpart in that there are more beneficial tax provisions in it. While there is not enough space to mention all of them, three worth noting include increased 2010 and 2011 expensing limitations for certain real property treated as Code section 179 property, an additional first-year depreciation for 50 percent of the cost of certain property placed in service after December 31, 2009 and, finally, an increase in the deduction amount allowed for start-up expenditures in 2010.
Another provision of SBJA that is worth noting is a new law that allows an eligible small business to carry back general business credits five years. Previously, small businesses could only carry back for one year. This credit carry back applies for 2010 and every year going forward.
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act
The newest law of the three is also full of business tax provisions including extending and expanding some of the SBJA provisions, such as increased expensing. One provision worth defining in detail is the payroll tax break. Millions will see their take home pay increase in 2011 because of a two percentage point payroll tax cut. Social Security tax withholding is normally taxed at 6.2 percent for the employee. (Employers match the 6.2 percent for the employee for a total of 12.4 percent. Add in Medicare taxes of 1.45 percent for each and you have the 15.3 percent that make up FICA taxes). The two percent cut reduces withholding to 4.2 percent and will thus put a few more bucks in worker’s pockets each paycheck this year. Further, the cut will have no effect on the employee’s future Social Security benefits. Employers will be using new withholding tables to administer the new law.
There are many more details to each of these new tax laws. To see those details, go to http://www.irs.gov/businesses