Tax Breaks Every Small Business Needs to Know About

Small businesses often get touted as the backbone of our economy—they create jobs, spur growth and lead to innovation. When the financial crisis hit in 2007 and led to the Great Recession, small businesses took a hit-consumer spending dropped and they stopped hiring. Many small businesses were forced to shutter.

To help reignited small businesses, the Obama Administration launched a series of tax cuts and credits to help shore up balance sheets and entice more spending and hiring.

Some of the tax breaks Obama provided have expired but here is a listing of the remainder:

1. Health care tax credit (part of the 2010 Affordable Care Act): gives owners with 25 or fewer employees and pay average salaries of $50,000 or less and pay for half of their health insurance premiums a tax credit.

2. Start up costs:  since 2004, small business owners were allowed to currently deduct $5,000 in business start up expenses. President Barack Obama permanently raised the amount to $10,000 when he initiated the Small Business Jobs Act.

3. Section 179 expensing:  these numbers shift from year to year. Back in the 1980s the amount a small business could expense for new equipment, machinery,furniture, fixtures and vehicles currently rather than depreciate was $25,000. President George W. Bush raised the limit to $250,000 and Obama extended that to $500,000 with the Small Business Jobs Act. It was set to return to $139,000 for 2013 but last minute legislation kept the level at $500,000

4. Bonus Depreciation: over the years, this little tidbit has been shelled out to businesses allowing the write off of up to 50% of the cost of vehicles, machinery, furniture, fixtures and equipment. The 2008 Economic Stimulus Act, signed into law by Bush set it at 50%. Obama increased it to 100%, but it’s currently at a rate of 50%.

5. Breaks for angel investors: since 1993, angel investors were allowed to exclude 50% of capital gains on investments into small, risky companies. With the Recovery Act, that was pushed up to 75%. Then it was raised to 100% by the Small Business Jobs Act and the Tax Relief Act kept it at 100% for investments made during 2011. For 2013, it’s back to 50%.

6. Cell phone deductions:  cell phones were once considered “listed property” which had a recordkeeping requirement in order to allow the deduction.  The Small Business Jobs Act simplified this provision permanently.

7. Limited penalties on tax errors: in the past a small business could pay anywhere from $50,000 to $200,000 depending on the mistake made, in penalties for tax errors. The Small Business Jobs Act permanently changed that to cap penalties at 75% of the mistake.

There were other tax breaks such as the loss carryback period extended to five years, the Work opportunity tax credit, the payroll exemption, alternative minimum tax credits to name a few but those breaks are long gone.