It’s the least happiest time of the year, also known as tax season. For a small business, it can be a giant pain in pocketbook. As a small business owner, you can lessen that pain by seeking out every legitimate tax deduction and tax credit. Your goal is either to garner a bigger income tax return or a smaller income tax liability. While this article does not replace professional tax advice, you can use it as a small business tax deduction check list. And since our area of expertise here is insurance, our focus is on 2010 small business insurance tax deductions and tax credits.
First of all, understand the difference between a tax deduction and a tax credit. Tax deductions reduce your taxable income, the figure the government uses to assess your tax liability. Many tax deductions are available only if you itemize your tax return. If you own a small business (especially a sole proprietorship), it pays to make the extra effort. Tax credits, on the other hand, are deducted from your tax liability; they come directly off the bottom line.
Small Business Health Care Tax Credit
As a result of ObamaCare, there is a small business health care tax credit available to you on your 2010 tax return. Briefly, it’s designed to encourage small businesses and small tax-exempt organizations to offer health insurance for the first time or maintain the coverage they already have. In general, it is available if you pay at least half the cost of single coverage for your employees. To qualify you have to have fewer than the equivalent of 25 full-time workers (for example, 50 half-time workers might be eligible), earning an average wage below $50,000. Regrettably, under the current law, sole proprietors or businesses that employ only a spouse and/or dependant do not qualify for the small business health care tax credit. You can get complete details at the IRS’s website.
Small Business Health Care Tax Deduction
If you are self-employed you can deduct your health care and dental insurance as a 100% above-the-line expense. You may also be able to include premiums paid for your spouse and dependents if they don’t have any other health care coverage.
Long-Term Care Insurance Tax Deduction
Premiums for eligible long-term care insurance policies are tax-deductible. Your allowable limit will depend on your age as of December 31, 2010. Consult with your tax pro to see if you qualify for this tax deduction.
Business Insurance Tax Deduction
The premiums for the various insurance policies you have for your business such as general liability insurance, professional liability insurance, property insurance, casualty insurance, business interruption insurance, state unemployment insurance, workers compensation insurance, employee medical insurance and some types of key person life insurance policies are deductible to the extent allowed by law.
Home Office Insurance Tax Deduction
If you use your home to conduct part or all of your business, a portion of your homeowners or renters insurance is tax deductible.
Small Business Vehicle Insurance Tax Deduction
You can deduct as an itemized expense the portion of your insurance premium that covers liability, damages and losses for vehicles bought and used for your business, unless you opt to take the standard mileage deduction. In that case, the IRS has already factored in the cost of insurance in the mileage rate. If you take the insurance deduction, it applies to all vehicles used for your business.
If you use your vehicle for business and personal use, you need to keep a log of what portion applies to business and use that to calculate the portion of your insurance premium that is a business tax deduction.
In either case, you can only deduct the insurance premium (or portion thereof) that you paid in the actual tax year 2010. You cannot deduct for prepaid premiums for 2011.