Dust off those receipts and make an appointment with your tax professional, because it’s time to do your 2010 tax filing. When tax season rolls around, many business owners may not be aware of the tax credits and deductions they can receive. Anything from buying new inventory to insurance and retirement plans can be tax deducted.
Smart Business spoke to Glenn Lauter and Donna Mittendorf of Comerica Bank about what tax credits and deductions can be taken advantage of this year to make sure your business’s 2010 tax bill is as low as possible.
What is Section 179?
Lauter: Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy or lease a piece of qualifying equipment, you can deduct the full purchase price from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in their companies.
Section 179 limits were increased by the Jobs Act of 2010, allowing businesses to write off up to $500,000 of qualified capital expenditures subject to a dollar-for-dollar phase-out once these expenditures exceed $2 million. To find out more information about Section 179, including a Section 179 calculator, visit www.section179.org.
What business expenses can be deducted?
Mittendorf: Make sure that you are taking advantage of all available deductions. Business owners can deduct business expenses as long as they are both ordinary and necessary. If you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost and deduct the business cost. If you use part of your home for business, you may be able to deduct expenses including mortgage interest, insurance, utilities, repairs and depreciation. If you use your car for business purposes, you can deduct car expenses, including mileage. You can also deduct employees’ pay, retirement contributions, rent expenses, interest, taxes and insurance. Make sure you check with your tax adviser for all available deductions because they can lead to significant savings.
Do businesses get tax credits if they go green?
Lauter: Yes, every time your business makes a green improvement, you could be eligible for a new tax credit. For example, if you buy a qualifying fuel cell, hybrid, advanced lean burn technology, or alternative fuel vehicle, you could receive a credit of up to $2,400. Things like reducing your energy consumption by adding solar panels, replacing windows or putting in a more efficient heating and cooling system not only helps trigger a tax credit but can save you money on your utility bills, as well. Businesses can deduct up to $1.80 per square foot of space in new or existing buildings where they install more efficient interior lighting, HVAC or hot water systems.
What is Section 199?
Mittendorf: Section 199 is the domestic production activities deduction and is one of the largest missed deductions by businesses. Under Section 199, taxpayers are allowed a deduction equal to a percentage of net income from their U.S. production activities. This deduction applies to businesses engaged in industries like manufacturing, film, computer software development/production (either off the shelf or downloadable software), sound recording, construction and utilities.
This deduction requires some complicated calculations, but don’t let that scare you away because the tax savings can be significant. In 2010, the percentage you are allowed to deduct under Section 199 increased to 9 percent, up from 6 percent.
How do health care plan options factor in?
Lauter: The cost of health care can be one of the greatest concerns for small business owners. Many small businesses combine high deductible plans with health savings accounts as a way to provide benefits to employees. Small business owners tend to overlook the ability to directly deduct health insurance as an adjustment from income. Not only can business owners deduct their insurance, they can also deduct their spouses’ insurance, as well.
Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your advisers regarding your specific situation.
Glenn Lauter and Donna Mittendorf are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $53.7 billion at Dec. 31, 2010. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.
