Small-Business Tax Breaks in 2010
This year, taxes on small-business owners are under particular scrutiny. They're getting so much attention because
While this bill offers a tax incentive for 2010, when it comes to taxes, 2009 is currently the more important year for small-business owners. The 2010 jobs bill does not affect the returns taxpayers are filing this April. Instead, small-business owners will be trying to cash in on several tax breaks stemming from last year's stimulus bill that can reduce the amount they owe on their 2009 income.
The majority of small businesses, which have few or no employees, may have trouble finding tax breaks that apply to them. "If you comb through the stimulus package and see what's practical for small businesses, there's just not a lot there, especially for the really small folks," says
But there is also good news for small-business owners this tax season. Some of the tax breaks that may seem out of reach or overly complicated are actually worth the effort. And there are some new tax breaks this year that appeal to many business owners -- not just the most successful.
Overlooked Tax Breaks
-- When self-employed people ask him for tax advice, Reeth finds confusion over the home office tax deduction to be the most common misconception that causes entrepreneurs to miss out on tax benefits.
This item in the tax code allows an individual to deduct any expenses incurred from running a business out of the home. For example, if you have a room in your home where you do all your work, you can write off a percentage of your rent or mortgage interest based on the proportion of your home that the office occupies. Reeth finds, however, that "it's shocking how few home-based businesses claim it because they are afraid they will get audited." Audits do occur, but Reeth says that businesses that could easily avoid
-- Another misunderstood tax-code item concerns businesses that do independent contract work.
The owners of these business must report the income earned from clients on their 1099 forms. But many do not realize, says Reeth, that the total amount that was billed to the client is not always the amount that should go on the 1099. "Say you invoice a client for
New Tax Breaks
-- Last year's stimulus bill created the Making Work Pay tax credit, which is worth up to
The tax credit is aimed at employees, but many business owners will get to cash in as well. That's because for about 20 million businesses in the country, the owner is the sole employee, so he or she might be eligible for the credit. "What's cool about that is it's a credit and not a deduction, you can write it off straight off your tax liability," says Reeth.
-- Small businesses that provide health insurance for their employees know about the Consolidated Omnibus Budget Reconciliation Act, which allows former employees to continue coverage for a period of time after they leave a business. Individuals who receive health benefits under COBRA have to pay 35 percent of the cost of premiums, while the former employer pays for the remaining 65 percent. But a stimulus provision offers a tax credit that reduces a business's employment taxes by whatever it is paying for the 65 percent.
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