Thurman, Shinn & CompanySmall Business Jobs Act of 2010The recently enacted 2010 Small
Business Jobs Act includes a wide-ranging assortment of tax breaks and
incentives for businesses. Here's a brief overview of the tax changes
in the Small Business Jobs Act.
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 DepreciationBefore 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).Boosted Deduction for Start-Up ExpendituresThe 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.
100% Exclusion of Gain from the Sale of Small Business StockOrdinarily, individuals can exclude 50% of their gain on the sale of qualified small business stock (QSBS) held for at least five years (60% for certain empowerment zone businesses). This percentage exclusion was temporarily increased to 75% for stock acquired after February 17, 2009 and before January 1, 2011. Under the Small Business Jobs Act, the amount of the exclusion is temporarily increased yet again, to 100% of the gain from the sale of qualifying small business stock that is acquired in 2010 after September 27, 2010 and held for more than five years. In addition, the Small Business Jobs Act eliminates the alternative minimum tax (AMT) preference item attributable to such sales.General Business Credits of Eligible Small Businesses for 2010 Get Five-Year CarrybackGenerally, 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.
General Business Credits of Eligible Small Businesses Not Subject to AMT for 2010Under 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.
Deductibility of Health Insurance for the Purpose of Calculating Self-Employment TaxThe 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.
Cell Phones No Longer Listed PropertyThis means that cell phones can be deducted or depreciated like
other business property, without onerous recordkeeping requirements.
S Corporation Holding Period for Appreciated Assets Shortened to Five YearsGenerally, 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 AccountingThe Small Business Jobs Act provides that in determining the
percentage of completion under the percentage of completion method of
accounting, bonus depreciation in 2010 is not taken into account as a
cost. This prevents the bonus depreciation from having the effect of
accelerating income.
Limitation on Penalty for Failure to Disclose Certain Reportable TransactionsThe Small Business Jobs Act generally limits the penalty to 75% of
the decrease in tax resulting from the transaction, retroactively to
penalties assessed after December 31, 2006. Minimum and maximum
penalties apply.
Revenue RaisersThese tax breaks come at a cost. To mention a few of these
unfavorable provisions, information reporting will generally be required
for rental property expense payments made after December 31, 2010, and
increased information return penalties will be imposed. If you should have any questions and/or concerns how The Small Business Jobs Act may impact your tax situation, please do not hesitate to contact our office to speak with one of our highly-qualified Tax Professionals at 573-760-9400. |