Many business tax law changes go into effect in 2010
written by: Nicholas H. Perrins
Many important tax changes go into effect in 2010. These non-indexing changes result from various laws that were enacted and regulations and other guidance issued over the past few years.
Deduction for domestic production activities increases. For tax years beginning after 2009, the Code Section 199 deduction for domestic production activities increases. Taxpayers will be able to claim a deduction generally equal to 9% (up from 6% for tax years beginning in 2007-2009) of the lesser of: (1) the taxpayer's "qualified production activities income" (QPAI) for the tax year or (2) taxable income (modified adjusted gross income, for individual taxpayers) without regard to this deduction, for the tax year. The deduction is further limited to 50% of the W-2 wages of the employer for the tax year.
Smaller employers may establish combined plans. For plan years beginning after 2009, employers with 500 or fewer employees may establish a combined defined benefit-401(k) plan (a "DB(k) plan"). In general, the defined benefit rules apply to the defined benefit portion of the plan and the defined contribution rules apply to the defined contribution portion of the plan. The 401(k) component must have automatic enrollment and must meet minimum matching contribution requirements.
Nonspouse beneficiary rollover option mandatory for qualified plans. Under Sec. 108(f) of the Worker, Retiree, and Employer Recovery Act of 2008, qualified retirement plans must offer nonspouse beneficiaries the opportunity to roll over an inherited plan account balance to an IRA set up to receive the rollover on the nonspouse beneficiary's behalf, effective for plan years beginning after Dec. 31, 2009. For earlier plan years, plans could, but were not required to, offer nonspouse beneficiaries this rollover option.
New limitation on deduction of farm losses. For tax years beginning after 2009, the farming loss of a taxpayer, other than a C corporation, is limited for any tax year in which any applicable subsidies are received. The loss is limited to the greater of (a) $300,000 ($150,000 for a married person filing separately), or (b) the taxpayer's total net farm income for the prior five tax years. Applicable subsidies are (1) any direct or counter-cyclical payments under title I of the Food, Conservation, and Energy Act of 2008 (or any payment elected in lieu of any such payment), or (2) any Commodity Credit Corporation (CCC) loan. For partnerships and S corporations, the limit is applied at the partner or shareholder level. Total net farm income is an aggregation of all income and loss from farming businesses for the prior five tax years. Any loss that is disallowed under this rule in a particular year is carried forward to the next tax year and treated as a deduction attributable to farming businesses in that year. Farming losses due to fire, storm, or other casualty, or disease or drought, are disregarded for purposes of calculating the limitation.
Increased penalty for failure to file partnership or S corporation returns. Civil penalties apply for failure to file a partnership and S corporation returns. The penalty is a statutory dollar amount times the number of partners or shareholders for each month (or fraction of a month) that the failure continues, up to a maximum of 12 months. The base amount on which a penalty is computed for a failure with respect to filing either a partnership or S corporation return for a tax year beginning after Dec. 31, 2009, increases from $89 to $195 per partner or shareholder.
Standard mileage rate changes. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 50¢ per mile for business travel after 2009 (down from 55¢ per mile for 2009). For 2010, the depreciation component of the mileage rate is 23¢ per mile (up from 21¢ per mile for 2009 and 2008).
Employers that require employees to supply their own autos may reimburse them at a rate that doesn't exceed 50¢ per mile for employment-connected business mileage during 2010 (down from 55¢ per mile for 2009), whether the autos are owned or leased. The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip.
Many business tax breaks expired at the end of 2009. Unless Congress acts to retroactively revive them, all of the following business tax breaks won't be available this year because they expired at the end of 2009. Note that tax breaks that would be extended by the "Tax Extenders Act" as passed by the House of Representatives in December of 2009 are indicated with an asterisk.
- Additional first-year 50% bonus depreciation for qualified property. In addition, the $8,000 increase in the first-year depreciation limit for passenger automobiles that are qualified property also expired at the end of 2009.
- For tax years beginning in 2010, (a) the maximum amount that may be expensed under Code Sec. 179 is $134,000 (down from $250,000 for tax years beginning in 2008 or 2009
- Incremental research credit under Code Sec. 41 .*
- Election to accelerate AMT and research credits in lieu of additional first-year depreciation.
- Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements under.*
- Credit for construction of new energy efficient homes.
- Encouragement of contributions of capital gain real property made for conservation purposes.*
- Enhanced charitable deduction for contributions of food inventory.*
- Enhanced charitable deduction for contributions of book inventories to public schools.*
- Enhanced deduction for corporate contributions of computer equipment for educational purposes.*
- The active financing exception from Subpart F of the Code.*
- The look-through treatment of payments between related controlled foreign corporations.*
This article is provided for general guidance only, and does not constitute the provision of legal, accounting or other professional advice of any kind. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. Please consult with your Tarpley & Underwood tax professional before taking any action.
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