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New Small Business Tax Cuts Explained

In the past few years, several "small business tax cuts," as they are commonly referred to, were put into law. While they may have been touched upon in the news when they were being passed, the details are still pretty blurry to most people. In this article, we'll clarify a few things these laws should mean to you as a small business owner.

1. Small Business Health Care Credit
As a small business owner, you can now be eligible for a new health care tax credit. If your business meets the following eligibility requirements, you can claim this credit: Your business must...

    - Cover at least half the cost of your employees' health care
    - Have fewer than 25 full-time workers or the equivalent (such as 50 part-time workers)
    - Pay less than $50,000 in average annual wages

The credit is available to both for-profit and non-profit companies, and is worth up to 35% of your small business's premium costs in 2010 (25% if you're a tax-exempt employer). If you think that's good, just wait until 2014 when it jumps to 50% (35% for non-profits). The IRS has even provided a handy fact sheet to help you determine whether or not your business qualifies. You can find it here: http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf

2. 75% Exclusion of Small Business Capital Gains Tax
Before the 2009 American Recovery and Reinvestment Act, only half of a small business stock's capital gains was exempted from taxes. Since then, the threshold was raised to 75%, with the remaining quarter taxed at maximum of 28%. The restrictions here are fairly easy to understand. First, your business needs to qualify as a "small business." This means it must have less than $50 million in gross assets and must not be an S corporation. Plus, the maximum gain that's eligible for the exclusion is "the greater of $10 million…less any gain reported on prior tax returns, or 10 times the taxpayer's cost basis (purchase price plus fees)."

3. Up to Five-Year Carryback Period for NOL
Prior to 2009, the IRS allowed business owners to offset the taxes they owed from one year with the losses they incurred from another for only two years at a time. This deduction has been raised, allowing most taxpayers to carry this privilege three, four, or even five years back for applicable net operating losses. Just remember to elect to use the NOL carryback within six months of the return's due date or you won't be able to claim this tax cut.

4. 100% Expensing
Throughout 2011, all expenses in productive capital investments are deductible from income taxes. How much of an impact will this have on your business? According to the Treasury, if your business makes a $1 million investment and pays a 35% tax rate, you could write off $350,000 from your business's 2011 taxes, as opposed to approximately $50,000 as it would be without the policy. Before this policy came into effect, the only way to depreciate the cost of productive capital investments was to spread out the tax benefits over several years. This 2011 "100% Expensing" policy is expected to be used by over two million businesses and generate around $50 billion in added investment.

5. Cell Phone Deductions Made Easy
Cell phones have always been an important tool for conducting business. And yet, for over 20 years, deducting cell phone costs as business expenses has been a pain due to their "listed property" consideration by the IRS. This meant loads of paperwork to fill out and keep track of before they could be written off on income tax returns. With last year's Small Business Jobs Act, the IRS finally removed cell phones from the designation of listed property, exempting them from the old requirements. Claiming deductions on cell phones has never been easier.

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