Tax credits are something every individual and business hope for as they prepare annual tax returns. With the myriad of credits and the accompanying requirements, here is information to help you decipher the credits as you look to the year ahead. Many of the financial decisions made during the rest of the year will impact tax returns filed next year.
Health Insurance Credit – Starting in 2010, small businesses can receive a credit for providing health insurance to employees. A small business is defined as a business with no more than 25 employees and less than $50,000 in annual wages per employee. For years 2010 to 2013, employers may qualify for a credit of up to 35% of the cost of employee health insurance premiums.
Hiring Incentives – For the rest of 2010, employers could potentially not have to pay Social Security taxes for new hires if the employee was previously unemployed. Employers may receive a credit for the employer portion of the FICA tax, which is 6.2% of the wages. This credit is taken on Form 941.
Retention Credit – In addition to the Hiring Incentives credit, if employers retain the newly hired employees through 2010, businesses may be eligible for up to a $1,000 Retention Credit on their business tax return for continuously employing workers that were eligible for the hiring incentives.
Domestic Productions Activity Deduction (DPAD) – This deduction significantly increases in 2010. For the last several years the deduction for businesses and individuals has been 6%. In 2010, the amount increases to 9%. This is especially attractive to individuals who own a portion of a production flow-through company who will see their incomes increase over the next several years.
Residential Energy Credit – These credits for certain improvements and HVAC equipment continue through 2010. New energy efficient furnaces, boilers, hot water heaters as well as central air conditioning units may qualify for personal tax credits on 2010 returns.
Cobra Subsidy – The COBRA subsidy is still in place at 65% to the employer and 35% to the employee. This credit was only extended through May 31, 2010.
A bill working through Congress, the American Jobs & Closing Tax Loopholes Act, if passed will extend several favorite credits through 2010. These credits include a deduction for local and general sales tax, property taxes, and qualified tuition expenses. The bill could also extend for one year the bonus deprecation for businesses. Lastly, the bill extends emergency unemployment compensation though December, 2010.
