IN 2010, many tax laws affecting small businesses will expire or change, making this an important year for business owners to take a proactive approach to tax planning.

These tax law changes will be affecting several areas including: cancellation of business debt, a significant drop in the cost of machinery and equipment that you can deduct, an increase in the domestic production activities deduction, reduction in the mileage rate, and many more.

Small-business owners who pay attention now can get set to take advantage of new deductions and avoid any negatives after laws expire.

For the struggling
Cancellation of business debt. This change, which may expire after 2010 for struggling business owners, was first implemented under the American Recovery and Reinvestment Act (ARRA) in 2009. The law enabled certain businesses to elect to delay recognition of income from the cancellation of business debt in both 2009 and 2010. Income recognition can be deferred until the fifth year after the reacquisition, and then the income is included ratably over the following five years.

Super-sized Section 179 deduction and 50 percent first year bonus depreciation may be eliminated. Under the current tax code, Section 179 allows businesses that spend less than $530,000 a year on qualified equipment to write off up to $134,000 in 2010 with no bonus depreciation. Section 179 is set to completely expire in 2011.

The 50 percent first-year bonus depreciation break is generally dead for assets placed in service in 2010. For a new business vehicle subject to the dreaded luxury auto depreciation limitations, this change has the effect of reducing the maximum first-year depreciation deduction by $8,000. Note that the 50 percent first-year bonus depreciation is still available for certain long-lived assets and transportation assets that are placed in service by December 31, 2010, but only for amounts invested in the asset as of December 31, 2009.

There is a good chance that upcoming legislation will retroactively reinstate both the $250,000 Section 179 deduction and the 50 percent first-year bonus depreciation break for 2010. Business owners should plan accordingly and keep a close watch.