|
Key Business Changes in the Small
Business Jobs Act
|
|
Important
Changes in Small Business Jobs Act
Hello,
The 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
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 in 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).
|
|
Boosted
deduction for start-up expenditures
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.
|
100% exclusion of gain from
the sale of small business stock
Ordinarily,
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 Feb. 17, 2009
and before Jan. 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
carryback
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.
|
|
General
business credits of eligible small businesses not subject to AMT for
2010
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.
|
|
Deductibility
of health insurance for the purpose of calculating self-employment tax
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.
|
|
Cell
phones no longer listed property
This
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
years
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
The
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 transactions
The
Small Business Jobs Act generally limits the penalty to 75% of the
decrease in tax resulting from the transaction, retroactively to penalties
assessed after Dec. 31, 2006. Minimum and maximum penalties apply.
|
|
Revenue
raisers
These
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 Dec. 31, 2010, and
increased information return penalties will be imposed.
|
|
|
|
|
Featured Article
The 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.
Please keep in mind that
I've described only the highlights of the most important changes in the
Small Business Jobs Act. If you would like more details about any
aspect of the new legislation, please do not hesitate to call.
|
|
