Thurman, Shinn & Company

Small Business Jobs Act of 2010

Enhanced Small Business Expensing (Section 179 Expensing)

To help small businesses quickly recover the cost of capital outlays, small business taxpayers can elect to write off these expenditures in the year they are made instead of recovering them through depreciation.  Under the old rules, taxpayers could generally expense up to $250,000 of qualifying property -- generally, machinery, equipment and software -- placed in service during the tax year.  This annual limit was reduced by the amount by which the cost of property placed in service exceeded $800,000.  Under the Small Business Jobs Act, for tax years beginning in 2010 and 2011, the $250,000 limit is increased to $500,000 and the Investment limit to $2,000,000.  The Small Business Jobs Act also makes certain real property eligible for expensing.  Thus, for property placed in service in any tax year beginning in 2010 or 2011, the $500,000 amount can include up to $250,000 of qualified leasehold improvement, restaurant and retail improvement property. 

Extension of 50% Bonus First-Year Depreciation

Before the Small Business Jobs Act, Congress already allowed businesses to more rapidly deduct capital expenditures of most new tangible personal property placed in service in 2008 or 2009 by permitting the first-year write-off of 50% of the cost.  The Small Business Jobs Act extends the first-year 50% write-off to apply to qualifying property placed in service in 2010 (as well as 2011 for certain aircraft and long production period property). 

The Small Business Jobs Act allows taxpayers to deduct up to $10,000 in trade or business start-up expenditures for 2010.  The amount that a business can deduct is reduced by the amount by which startup expenditures exceed $60,000.  Previously, the limit of these deductions was capped at $5,000, subject to a $50,000 phase-out threshold. 

Generally, a business's unused general business credits can be carried back to offset taxes paid in the previous year, and the remaining amount can be carried forward for 20 years to offset future tax liabilities.  Under Small Business Jobs Act, for the first tax year of the taxpayer beginning in 2010, eligible small businesses can carry back unused general business credits for five years instead of just one.  Eligible small businesses are sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years. 

Under the AMT, taxpayers can generally only claim allowable general business credits against their regular tax liability, and only to the extent that their regular tax liability exceeds their AMT liability.  A few credits, such as the credit for small business employee health insurance expenses, can be used to offset AMT liability.  The Small Business Jobs Act allows eligible small businesses to use all types of general business credits to offset their AMT in tax years beginning in 2010. 

The Small Business Jobs Act allows business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in calculating their 2010 self-employment tax. 

This means that cell phones can be deducted or depreciated like other business property, without onerous recordkeeping requirements. 

Generally, a C Corporation converting to an S Corporation must hold onto any appreciated assets for 10 years or face a built-in gain tax at the highest corporate rate of 35%.  The 2010 Small Business Jobs Act temporarily shortens the holding period of assets subject to the built-in gains tax to 5 years if the 5th tax year in the holding period precedes the tax year beginning in 2011. 

New Tax Break for Long-Term Contract Accounting