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Tax Law Changes for Businesses in 2010
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Deduction for domestic production activities increases. For tax years beginning after 2009, the IRC § 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 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 years, plans had the option to, 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 certain 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. 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. Penalties apply for failure to file 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. For tax years beginning after Dec. 31, 2009, this per-month penalty increases from $89 to $195 per partner or shareholder.
Electronic filing changes go into effect. Beginning in 2010, IRS will allow the electronic filing of Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, using the Employment Tax e-file System. Schedule R is a new form that must be completed by consolidated Form 941 filers, beginning with the first quarter 2010 Form 941. Form 2678, Employer/Payer Appointment of Agent, must be mailed to the applicable address listed on the instructions for the agent to be eligible to file Schedule R. After receiving IRS approval, the agent must file one Form 941 return for each tax period, using the agent's own employer identification number, regardless of the number of employers for whom the agent acts. The agent must maintain records that will disclose the full wages paid for each of his or her clients, as reported on the Schedule R. (For more information see IRS Publication 3823, Employment Tax e-file System Implementation and User Guide.)
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 (5¢ less than the 55¢ allowance for business mileage during 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. Additionally, an employee's personal use of lower-priced company autos during 2010 may be valued at 50¢ per mile if certain conditions specified in the regulation are met.
Certain tax breaks expired at the end of 2009. These tax breaks expired at the end of 2009 and were not included in the “Tax Extenders Act” that was passed by the House of Representatives in Dec., 2009.
- Additional first-year 50% bonus depreciation for qualified property under IRC § 168(k)(2) (but note that certain aircraft and long-production-period property continues to be eligible if placed in service in 2010). 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 IRC § 179 is $134,000 (down from $250,000 for tax years beginning in 2008 or 2009); and (b) the maximum annual expensing amount generally is reduced dollar-for-dollar by the amount of IRC § 179 property placed in service during the tax year in excess of $530,000 (down from $800,000 for tax years beginning in 2008 or 2009)
- Election to accelerate AMT and research credits in lieu of additional first-year depreciation under IRC § 168(k)(4) .
- Credit for construction of new energy efficient homes under IRC § 45L .
- Suspension of the taxable income limit for purposes of claiming depletion deductions on marginal oil or gas wells.
These guidelines have been provided by Watkins Meegan, a TBS CPA Partner.
Watkins Meegan
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