Tax Tips: What's new in the small business jobs act

Doesn't it seem a bit suspicious when Congress passes "helpful" legislation just before an election? Well, they did it again.

You could say, "There is nothing new under the sun," and you would be close to describing this bill. The same old stuff ... Code Sec. 179 expensing (new higher limits); Extending Bonus Depreciation; Extending General Business Credit carry back for five years.

There's some new stuff too: Cell phones taken off the IRS classification as "listed property" (it's about time); health insurance deduction for self-employed folks moved to reducing income subject to self-employed tax (there's a catch...there's always a catch); and finally some other provisions that most folks wouldn't understand, let alone benefit from.

Code Sec. 179 is expanding. Now for tax years beginning in 2010 and 2011, you can fully expense certain purchases up to $500,000 in the year of purchase rather than depreciating over multiple years. The definition of what is eligible for expensing has now been expanded to include qualified real property - leasehold improvements, qualified restaurant property, and qualified retail improvement property. One difference: Qualified real property is limited to $250,000.

Bonus depreciation is extended through Dec. 31, 2010. Bonus depreciation is expensing up to 50 percent of the cost of new equipment purchased in 2010, then depreciating the balance over its official IRS designated life. On top of that, this bill also extends, through 2011, bonus depreciation for property with an IRS designated life of 10 years or longer. Consult with your CPA to get the details on what types of properties have different official depreciable lives. Trust me when I say, "It usually has nothing to do with the actual life of an asset."

One provision in this bill has to do with Qualified Small Business Stock. Basically, if you bought this special type of stock after Feb. 17, 2009 and before Jan. 1, 2011, then hold onto it for at least five years, you can exclude 100 percent of the gain (if you have any) when you sell it. Talk to your CPA for more details on this one. It's complicated.

Finally, for many years now, self-employed individuals have been allowed to deduct their health insurance premiums for computing their federal income tax, but not their self-employment tax. (How many of you knew that self-employed businesses have two taxes they pay? The self-employed tax rate works out to be about 14 percent.) Now, for tax years starting in 2010, the health insurance premium is considered an expense against the self-employment tax calculation, thus saving on both taxes instead of just one. But wait, there's a catch. This is only allowed for the first tax year that begins after Dec. 31, 2009. (Notice that it appears to only be for the first year of a new business at this time.)

• Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459.