Congress and the President made mighty efforts last year to stimulate the economy, culminating December 17 in the 2010 Tax Relief Act. This massive bill not only extended the Bush-era tax cuts for individuals, it also extended dozen of business tax cuts and created some new ones. Your tax accountant or lawyer can help you cull through the more obscure tax provisions of the new law — officially known as the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. But here are 10 tax highlights for businesses and business people from the Tax Relief Act, health care reform, and parts of the tax code to get you started:

1. Expanded Section 179 deduction. It’s hard to pass up a $500,000 tax deduction, and many businesses find ways to claim the total cost of acquiring business assets the year they are acquired under Section 179 of the tax code. The increased $500,000 limit applies to tax years starting in 2010 and 2011, and includes qualified real property for the first time.

CPA Kevin Hablewitz of Hau & Associates S.C., Milwaukee, sees a great benefit to businesses and the economy in the increased Section 179 expense deduction. “It will provide incentive for businesses to purchase equipment that they otherwise may have purchased at a later date or not purchased at all,” he says.

Section 179 expensing for business vehicles has had strict limits, due to its abuse to buy large SUVs several years ago. But the current limits have been raised to $11,600 for cars and $11,160 for trucks and vans, which can help a lot.

2. 100 percent bonus depreciation. While the Section 179 deduction has limitations based on business income and total cost of assets purchased, the Tax Relief Act’s 100 percent bonus depreciation provision covering new machinery and equipment isn’t so constrained. It can be used for writing off any equipment costs not covered by Section 179 rules. The bill provides for full expensing of property placed in service after September 8, 2010, and before January 1, 2012. (January 1, 2013 for certain aircraft and property with long production periods.)

“This bonus 100 percent depreciation not only allows businesses to reduce or eliminate taxes on current year profits,” says Hablewitz, “it will also allow businesses to create a tax loss that can be carried back to recoup taxes paid in a previous year.”

3. A new deduction for software. A specific provision of the Tax Relief Act adds computer software programs to the assets that qualify for 100 percent depreciation. So if you’ve been putting off implementing new ERP, payroll, office and manufacturing software, now may be the time to pull the trigger.

4. Federal R&D tax credit. The research credit under Section 41 of the Tax Code, which had expired at the end of 2009, was extended retroactively for two years through December 31, 2011. Rick Stezenski, partner and Midwest region practice leader of Corporate Strategic Federal Tax Services at Grant Thornton LLP, Milwaukee, said the largest segment of his firm’s Wisconsin practice is serving manufacturing and distribution companies.

“The retroactive extension of the research tax credit is huge for these companies,” Stezenski says. “Any company that cut back on new product development activities to focus on areas such as Lean manufacturing, process improvement and automation can also take advantage of the research credit.”

5. Capital gains tax still 15 percent. Tapping successful long-term investments for capital will continue being taxed at a maximum rate of 15 percent through 2012. So will qualified dividends received by individuals provided certain holding period requirements are met. “Some people view this as a benefit for the wealthy,” Stezenski says. “But the reality is that significant benefits of the 15 percent capital gains rates are received by the individuals selling small- and mid-sized businesses.

6. Estate tax limit. For 2010, there was no tax on estates for the first time since 1915. For 2011, the first $5 million is exempt, and anything over that is clipped 35 percent. In 2012, the 35 percent stays but the exemption level is adjusted for inflation. (After 2012, without further legislation, the estate tax reverts to 55 percent with a $1 million exemption.) Since no one plans when to die, the thing you can take action on is gifting your estate, which now falls under the $5 million exemption from taxes.

7. Self-employed health insurance. A new deduction from the 2010 health care law allows the self-employed to deduct the full cost of not only their own health insurance premiums, but those covering their families as well.

8. Energy tax credits. Going green can improve your bottom line if you take advantage of the more than 50 energy-related tax credits the new tax law extends through the end of 2011. For instance, your firm can opt to receive a Section 1603 cash grant in lieu of a tax credit if you construct a facility to generate power using a qualified alternative energy source such as wind, biomass, geothermal or certain solar sources. Other energy tax credits involve use of ethanol, biodiesel and renewable diesel fuels.

9. Deduction for business losses. Some of the dark clouds in the economy may have a silver lining. Business losses can be deducted against a business owner’s personal income to reduce taxes. If a business owner’s losses exceed personal income for the year, some of the year’s business losses can be used to reduce taxable income in future years.

10. Wisconsin incentives. Wisconsin offers a host of tax incentives for companies that invest in jobs, training, facilities and technology. “One incentive with broad-based applicability that has received little publicity is the new Super Research and Development Tax Credit that establishes a dollar-for-dollar credit to offset future tax liabilities for qualified research expenses,” Stezenski says.

Both the federal and state governments hope that more Wisconsin businesses will take advantage of the tax savings being offered to spur economic activity. That way, a rising tide will lift all ships, and tax revenues will eventually increase.

By Paul Zukowski

Paul Zukowski is a freelance writer in Madison and a former editor of Corporate Report Wisconsin.

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