Small Business Jobs Act of 2010 - What This Means For Your Business
On Sept. 27, 2010, President Obama signed into law the Small Business Jobs Act, the most significant piece of small business legislation in over a decade. The new law is providing critical resources to help small businesses continue to drive economic recovery and create jobs. The new law extended the successful SBA enhanced loan provision while offering billions more in lending support, tax cuts and other opportunities for entrepreneurs and small business owners.
The following is an overview of the most significant tax provisions – more than $12 billion in lending support:
Increased small business expensing limit to $500,000 for 2010 and 2011: As an incentive for small businesses to acquire capital assets, they can elect to deduct the entire cost of these expenses in the same year it was purchased, instead of depreciating the assets over time. For tax years beginning in 2010 and 2011, the Section 179 expensing limit has been increased from $250,000 to $500,000 of direct deduction, and the Section 179 investment cap increased from $800,000 to $2,000,000 before the expensing limit starts being reduced. The 2010 Small Business Jobs Act provisions also expand new Section 179 deduction availability to certain real property improvements. For tax years beginning in 2010 or 2011, up to $250,000 of the Section 179 deduction can include qualified real property expenditures. Generally, qualified real property improvements include qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property. It is important to understand that there are also taxable income limits for currently claiming the section 179 deduction, so it is important to work with your tax advisors in planning any major purchases.
Small business credits are allowed to be carried back five years: 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 the new law, for the first tax year of the taxpayer beginning in 2010, eligible small businesses can carry back unused general business credits for five 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 new law allows eligible small businesses, as defined above, to use all types of general business credits to offset their AMT in tax years beginning in 2010.
S corporation holding period: Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 full years following its conversion or pay tax on the “built-in gain” at the highest corporate rate of 35%. The 10 year period was temporarily reduced where the seventh tax year in the holding period preceded the tax year beginning in 2009 or 2010. The Act temporarily shortens the holding period of assets subject to the built-in gains tax to 5 years if the fifth tax year in the holding period precedes the tax year beginning in 2011.
Extension of 50% bonus first-year depreciation: Businesses are allowed to deduct the cost of capital expenditures over time according to depreciation schedules. The new law extends the first-year 50% write-off to apply to qualifying property placed in service in 2010 (2011 for certain property). The 2010 tax relief act modified to 100% bonus depreciation for investments made after 9/8/2010 and before 1/1/2012.
Cell Phones Are No Longer Listed Property: This means that cell phones can be deducted or depreciated like other business property, without onerous recordkeeping requirements. Prior to this very few taxpayers were actually in compliance of the tax law.
The Small Business Jobs Act includes numerous other provisions that may be beneficial for your company. Please contact your tax advisor to discuss how the provisions of this Act may impact your specific situation.
Self-Employment Deduction for Health Insurance Costs: Starting in 2010, the Act allows self-employed individuals to deduct health insurance costs in calculating net earnings from self-employment for the purposes of determining self-employment taxes.