Tax preparation will be more complicated this year for some small-business owners.
State rules have been newly tightened because of California's budget shortfall. And talk about new -- some federal tax incentives were not passed until just days before the end of 2010.
"Literally, we couldn't file individual returns that had itemized deductions a week ago because the forms weren't ready because the politicians in Washington jerked around until December to make this thing happen," said Robert S. Seltzer, a certified public accountant in Beverly Hills whose clients include small-business owners and entertainment industry professionals.
On the plus side, he said, many of the federal incentives have a two-year lifespan, so small-business owners have a period of certainty under which they can make business decisions that have tax consequences, such as when to buy equipment or hire an employee.
"We need all the breaks we can get, tax-wise," said Liane Weintraub, chief executive and co-founder of Calabasas-based Tasty Brand Inc., which makes organic snack foods for kids.
"Every day I make decisions not to spend or to be more careful with spending, so when it comes to taxes, the more leniency we can get, the more that translates into success for us and growth so we can hire more people," said Shannan Swanson, the company's other founder.
Federal tax changes for the 2010 tax year cover credits and deductions. Credits count against taxes owed. Deductions reduce the amount of income subject to taxes.
Here's a look at some of the federal changes, which could save small businesses money:
* Federal tax credits earned last year can now be applied against income tax paid in the five previous years, using a method called "carrying back." That can trigger a tax refund for some firms.
And small businesses can immediately deduct as much as $500,000 of the cost of what's known as real property -- including machinery, equipment and furniture -- in the year that it's bought. The deduction cap is twice as much as it was previously. It can also apply to some real estate improvements, including those made to restaurant and retail properties.
The deduction begins to phase out when the cost of the purchase exceeds $2 million (previously, the phase-out began at $800,000).
* The federal small-business healthcare tax credit is also new for the 2010 tax year. Firms that can meet its strict requirements, which include paying average wages of not more than $25,000 to workers (who can be full- or part time) to get the full tax credit, say it could be a boon.
"That's something we need to revisit this year," said Earl Baer, CEO of Price & Item Media Inc., a Malibu-based online publisher of community websites, including ThisWeekInSocal.com, which has five employees.
In California the tax pendulum has swung somewhat in the opposite direction as lawmakers try to find funds to cover the budget deficit.
The state has suspended for two more tax years -- 2010 and 2011-- the rule that lets businesses apply losses from one year against income in a future year. And the exception to the suspension has been changed to businesses with income under $300,000 from $500,000 previously.
On the chopping block altogether is the state's enterprise zone program that allows tax credits for businesses in any of the state's 42 zones.
Credits are still available for the 2010 tax year but may not be around for future years if Gov. Jerry Brown and others have their way, said Blake Christian, a Long Beach-based tax partner at Holthouse Carlin & Van Trigt of Los Angeles that specializes in corporate tax credits.
One state credit that is still available is the little-used new-jobs tax credit specifically for small businesses. It cuts as much as $3,000 off the tax bill for each qualified, full-time employee hired. But there are several restrictions. For example, it's only for companies with 20 or fewer employees as of 2009. And the business must have ended 2010 with more full-time employees than it had in 2009.
Those restrictions, including the fact that businesses have not been doing much hiring during the slump, explains why only about 10% of the $400 million allotted for the credits has been used.
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5,220 -- Number of California income tax returns that have claimed the state's new-jobs tax credit
$400 million -- Total value of credits allotted for the new-jobs program
$37.3 million -- Total value of new-jobs credits, which can be up to $3,000 per new employee, that have been granted under the new-jobs program
Source: California Franchise Tax Board