Many business tax law changes go into effect in 2010

Here are a selected few:

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. (Code Sec. 414(x)(2))

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. (Code Sec. 6698(b)(1) and Code Sec. 6699(b)(1))

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. 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. Additionally, an employee's personal use of lower-priced company autos during 2010 may be valued at 50¢ per mile if the conditions specified in Reg. § 1.61-21(e)(1) are met. (Rev Proc 2009-54, 2009-51 IRB)

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: The tax breaks that would be extended by the “Tax Extenders Act” as passed by the House of Representatives in December of 2009 (see Federal Taxes Weekly Alert 12/17/2009) are indicated with an asterisk (*) below.]

Additional first-year 50% bonus depreciation for qualified property under Code Sec. 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 Code Sec. 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 Code Sec. 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 Code Sec. 168(k)(4).
Credit for construction of new energy efficient homes under Code Sec. 45L.
Suspension on the taxable income limit for purposes of claiming depletion deductions on a marginal oil or gas well. (Code Sec. 613(c)(6))
* Incremental research credit under Code Sec. 41.
* Five-year depreciation for farming business machinery and equipment under Code Sec. 168(e)(3)(B)(vii).
* Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements under Code Sec. 168(e)(3)(E)(iv), Code Sec. 168(e)(3)(E)(v), and Code Sec. 168(e)(3)(E)(ix).
* Deduction allowable for income attributable to domestic production activities in Puerto Rico under Code Sec. 199.
* Expensing of “brownfields” environmental remediation costs under Code Sec. 198(h).
* Encouragement of contributions of capital gain real property made for conservation purposes under Code Sec. 170(b)(1)(E) and Code Sec. 170(b)(2)(B).
* Enhanced charitable deduction for contributions of food inventory under Code Sec. 170(e)(3)(C).
* Enhanced charitable deduction for contributions of book inventories to public schools under Code Sec. 170(e)(3)(D).
* Enhanced deduction for corporate contributions of computer equipment for educational purposes under Code Sec. 170(e)(6)(G).
* The active financing exception from Subpart F of the Code. (Code Sec. 953, Code Sec. 954)
* The look-through treatment of payments between related controlled foreign corporations. (Code Sec. 954(c))
* Seven-year straight line cost recovery period for property used for land improvement and support facilities at motorsports entertainment complexes. (Code Sec. 168(i)(15))
* Accelerated depreciation for business property on an Indian reservation. (Code Sec. 168(j))
* The railroad track maintenance credit. (Code Sec. 45G)
* Film and television producers' election to expense the first $15 million of production costs incurred in the U.S. ($20 million if the costs are incurred in economically depressed areas in the U.S.). (Code Sec. 181)
* The credit for training mine rescue team members. (Code Sec. 45N)
* Election to expense 50% of the cost of qualified underground mine safety equipment. (Code Sec. 179E)
* The credit for eligible small business employers equal to 20% of the sum of differential wage payments to activated military reservists. (Code Sec. 45P)
* The tax treatment of interest-related dividends, short-term capital gain dividends, and other special rules applicable to foreign shareholders that invest in regulated investment companies (RICs). (Code Sec. 871(k))
* The new markets tax credit. (Code Sec. 45(f)(1))

Source: Federal Tax Updates on Checkpoint Newsstand tab 1/4/2010