New Health Insurance Premium Deduction For The Self-Employed on Form 1040 Schedule C.

Pursuant to the Small Business Jobs and Credit Act signed into law by President Barack Obama in September of 2010, individuals that are self-employed (sole proprietors), and individuals who are the sole owner of a single-member LLC, or the sole owner (shareholder) of a corporation, can deduct the cost of their health insurance premiums on their 2010 federal income tax returns. Don’t be fooled…this is new business tax deduction. Although the self-employed were always able to deduct their health insurance premiums on Schedule A, the self-employed were still required to pay the 15.3% self employment tax on the income earned to pay those health insurance premiums. Under this new deduction (good only for 2010), the sole proprietor will be able to write off the amount spent on health insurance premiums on their 1040 Schedule C, which in effect means the sole proprietor will NOT have to remit payment of the self-employment tax on the portion of their income that spent on health insurance premiums.

Startup Expense Deduction Increased From $5,000 to $10,000.

If you started a business in 2010 or plan to do so in 2010, you can deduct up to $10,000 in startup expenses (expenses incurred before a company starts operating) incurred to investigate, create, or acquire a business including funds spent on legal and accounting services, promotions, etc...

Capital Expenditure Deduction Increased to $500,000.

For the first time, companies can deduct as much as $500,000 in expenses for the purchase of fixed assets such as machinery, furniture, computers, and even qualified real property, such as qualified restaurant, retail, and/or leasehold improvement property made in either 2010 or 2011. This deduction was increased from $250,000, but phases out after once a company has invested more than $2 million in such capital investments.

New Equipment Write Off.

Retroactive to January 1, 2010, the Small Business Jobs Act of 2010 extends the 50% first-year bonus depreciation that previously expired in December of 2009 through 2011. Small businesses that have purchased, or will purchase, new equipment in 2010 will be allowed to write off 50% of the amount paid on their 2010 federal tax return, rather than depreciating the cost over time.

Increased Vehicle Purchase Deduction.

The American Jobs Creation Act (AJCA) of 2004 clarified the rules regarding allowable depreciation and bonus deductions for personal automobiles, SUVs, vans, and trucks, especially with regards to the “Luxury Auto Limitations” under Internal Revenue Code 280F and the Section 179 expense election. Under the new legislation, the allowable first year depreciation limit on automobiles increased $8,000 from $3,160 to $11,060. Thus, if you purchase a $30,000 vehicle and begin using it for your business by the end of 2010, you will be able to claim a first year depreciation deduction of $11,060 for 2010. If you wait to make the purchase until January 1, 2011, the will only be $3,060. Please note that if you use a vehicle for both business and personal use, your accountant will need to adjust the deductible dollar limits based on the percentage that is business use.

Exclusion of Gain on the Sale of Qualified Small Business Stock.

Before the 2009 Recovery Act, an individual could exclude only 50% of their gain on the sale of qualified small business stock (QSBS) held for at least 5 years. The 2009 Recovery Act increased the exclusion to 75% for stock acquired after February 17, 2009 and before January 1, 2011. Under the new law, the exclusion is increased to 100% of the gain from the sale of QSBS, eliminating all capital gains taxes, but only if:

1. The stock is acquired between September 27, 2010 and December 31, 2010; and
2. The stock is held for more than 5 years; and
3. The stock purchased was issued by a C Corporation that meets various additional requirements (annual revenues under $50 million).

This office does not provide tax advice. Please confirm this information with your CPA.

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that, to the extent this communication (or any attachment) concerns any tax matter, it was not written to be (and may not be) relied upon to (1) avoid tax-related penalties under the Internal Revenue Code, or (2) promote, market or recommend to another party any transaction or matter addressed herein (or in any such attachment).