New Tax Breaks/Penalties for Small Businesses

In late September, Congress enacted the Small Business Jobs Act of 2010, in an effort to help the economy recover. Here a just a few key provisions that may impact farmers:

• Expanded Section 179 Deductions. The annual limit is now $500,000 for the tax years 2010 and 2011.
• Extension of 50% Bonus Depreciation. Congress has renewed the ability to deduct 50% of the cost of new (NOT used) asset purchases, to the extent not already deducted under Section 179. The problem here is that Congress enacted this incentive at the end of September, and it expires Dec. 31, 2010, regardless of your tax year.
• Tax Break for the Self-Employed. Self-employed proprietors and partners can now deduct 100% of their health insurance for income taxes. For one year only in 2010, health insurance will also be a deduction in computing the self-employment tax.
• 1099 Reporting by Landlords. Now for the bad news - those who own real estate and receive rental income are now in the 1099 game. If a landlord pays more than $600 to an individual or partnership for services, the property owner is considered to be conducting a business and must issue a 1099 to the payee. This requirement begins with payments made after 2010. (2011 is the first year for issuing a 1099 report.)
• Increase in Information Return Penalties. Penalties are now doubled for businesses that fail to issue a 1099 to the IRS and the payee. They max out at $100 for failure to furnish a 1099 to the IRS and another $100 for failing to furnish a report to the payee.