The end of the year came and went without formal approval of the “Tax Extenders Act of 2009.” But this new legislation is expected to be signed shortly.
Alert: Once enacted, the new law would retroactively extend a bunch of key tax provisions that expired after 2009. Generally, it will preserve these tax benefits for one more year. So Congress will probably revisit the same issues again at the end of 2010.
To celebrate this good news for small businesses, we've gathered all the best tax strategies into one concise, plain-English guide Surprise Tax Windfall for Small Business Owners
The Senate is expected to go along with the House-approved version of the bill. Here are the main tax winners for individuals and businesses.
Tax breaks for individuals
Sales tax deduction: Instead of deducting state and local income taxes, itemizers could choose to write off state and local sales taxes paid during the year. Use actual receipts to back up sales tax deductions or refer to the convenient IRS table for your state. If you use the table, you could still add on sales tax paid on “big-ticket items” such as cars, boats and homes.
Tuition deduction: The deduction for a child’s college tuition would extend through 2010. Depending on your adjusted gross income (AGI), this above-the-line deduction is either $2,000 or $4,000. But no deduction would be available to single filers with an AGI above $80,000, or $160,000 for joint filers. Also, you can’t claim the tuition deduction if you take either the revamped American Opportunity credit (formerly the Hope credit) or the Lifetime Learning credit.
Charitable gifts from IRAs: If someone was age 70½ or older in 2009, he or she could contribute up to $100,000 in an IRA directly to a qualified charity without paying tax on the transfer. (But no charitable deduction is allowed either.) The new law would extend the exemption for charitable distributions from an IRA through 2010.
Conservation donations: Recent tax laws have provided enhanced benefits for donating real estate for conservation purposes. For instance, the usual 30% cap on conservation contributions was raised to 50% (100% for qualified farmers and ranchers). Furthermore, excess contributions could be carried forward for up to 15 years instead of the usual five years. The provisions “sunset” at the end of 2009, but now would extend through 2010.
Property taxes: Nonitemizers were permitted to claim an extra standard deduction of up to $500 for real estate taxes paid in 2009 ($1,000 for joint filers). Under the new law, this “one-time” tax break also would be available in 2010.
Educator expenses: Professional educators could continue to deduct up to $250 of classroom items they personally purchase. This includes supplies, books, equipment and computer software.
It’s official: Small business owners and managers can now use dozens of new tax-cutting tools that can double their net personal income in the coming tax year.
This is no accident. Government officials who are advocates for small business intend this to happen. And you have every right to take the money without apology. Learn how with Surprise Tax Windfall for Small Business Owners
Tax breaks for businesses
Research credits: The business credit for qualified research expenses has been extended in several reincarnations. Once again, the new law would extend this credit for cutting-edge businesses for tax years beginning in 2010.
Building improvements: Normally, building improvements must be depreciated over a lengthy 39-year period. But a 15-year period of straight-line deductions would be permitted for leasehold, restaurant and retail improvements placed in service in 2009. The new law would continue the faster write-off period for qualified property placed in service in 2010.
Donations of business property: The new law also would extend enhanced deductions for certain charitable gifts of property made in 2010. For example:
- If a business donates food inventory for the care of the ill, the needy or infants, it may deduct an amount equal to the basis plus one-half of the appreciation (up to twice the basis.) This enhanced deduction could be claimed by all business entities.
- If a C corp donates computer equipment or books to an elementary or secondary school, it could deduct an amount equal to the item’s basis, plus one-half of the appreciation (up to twice the basis).
S corporation basis: If you’re a shareholder in an S corp, your basis in stock is reduced by your pro rata share of the adjusted basis of property donated by the S corp. You won’t realize a taxable gain or loss attributable to the property’s appreciation upon a subsequent sale of stock. The new law would extend this provision for tax years beginning in 2010.
By staking your claim now, without delay, you can take your share of the tax-saving windfall – starting this year. You can:
- Stay in a low tax bracket, regardless of how much you make
- Use the “Family Device” to cut taxes
- Find out how a $51 gift can save you hundreds in taxes
- Maximize the tax benefits of hiring relatives
- Discover which old-reliable tax shelters still work and which bring audits
- Lease appreciating assets to your company
- Qualify for the tax strategy that doubles or triples your retirement benefits
- Unleash the inside strategies of the marital deduction
- Set up “Private Arrangements” – between you and you – that pay big rewards
- Get a quality education for yourself or a loved one when you take the IRS to school
- Use an Employee Stock Ownership Plan to sell your business tax free