SMALL BUSINESS JOBS ACT OF 2010
SEPTEMBER 28, 2010
Congress passed the SMALL BUSINESS JOBS ACT OF 2010 on September 27, 2010. This bill has numerous tax incentives which may benefit small business owners. It also includes a few provisions which may prove to be difficult compliance issues. Below is a list of the major provisions of the bill along with a brief summary.
Bonus Depreciation – The 50% bonus depreciation provision that expired at the end of 2009 has been extended to December 31, 2010. This provision applies to most new tangible personal property purchased and some types of new real property placed in service before the end of 2010.
IRC Sec 179 Expensing – Eligible businesses can now expense up to $500,000 of qualifying property placed in service before December 31, 2011 as long as the total investment in qualifying property is under $2 million. Qualifying property includes most tangible personal property, leasehold improvement property, restaurant property and retail improvement property. The expensing limit on qualifying real property is limited to $250,000.
S Corporation Built-In Gain Period – For C corporations that have already elected S corporation status in tax years 2006 and before, the built-in gain will no longer apply to property owned in the year the corporation became an S corporation and was subject to built-in gain.
Carry back of General Business Credits – Beginning with the 2010 tax year, eligible small business credits not used in the current year can now be carried back five years to obtain refunds if the company qualifies as a “small business”. You are defined as a small business if average annual gross receipts for the prior three years are less than $50 million. These credits can offset both regular tax and alternative minimum tax.
Gain Exclusion on the Sale of Small Business Stock – Gain on the sale of original stock issued by corporations whose gross assets are under $50 million and is issued after September 27, 2010 but before January 1, 2011 may be fully excluded from tax when the stock is sold provided that the stock has been held at least five years on the date of sale. Other requirements must be met for the full exclusion of the gain.
Start-Up Expense Deduction – In tax year 2010 only, up to $10,000 of start-up cost can now be expensed assuming that no more than $60,000 of total start-up cost have been incurred.
Self-employment Income Calculation – In tax years beginning after December 31, 2009, the cost of a self-employed taxpayer’s health insurance can be deducted for purposes of calculating self-employment tax.
Roth Account Conversions – The bill now authorizes participants in various kinds of retirement plans including 401(k), 403(b), and 457(b) plans to convert their balances to ROTH accounts. In 2010 only, pre-tax balances that are converted to ROTH balances can ratably spread the reporting of income equally in 2011 and 2012 unless the taxpayer elects to report the income in 2010. Plans might have to be amended first to allow ROTH accounts meaning that administrators have a very short period of time to allow participants to take advantage of this provision.
Information Reporting on Rental Property Payments – Beginning in 2011, both recipients of rental income and payers of rental property expenses over $600 will now be subject to Form 1099 information return reporting. Individuals subject to this requirement and exceptions to reporting will both be announced at some point in the future. Penalties for not filing information returns have now been substantially increased for all types of returns.
There are other provisions in the act which may affect particular taxpayers. Specific questions should be directed to the partner or staff member who handles your account to help you decide which provisions you are affected by and which provisions may be an appropriate part of your tax planning for 2010. There will be other changes in the tax laws before year-end. In our continuing effort to be proactive in the delivery of our tax services to clients, we wanted you to have quick access to the information contained in this tax act as you begin to think about the type of planning you and your company needs to do before the end of 2010.
We also want to remind you about the SMALL BUSINESS HEALTH CARE TAX CREDIT that was previously passed as a part of the HEALTH CARE AND EDUCATION RECONCILIATION ACT OF 2010. This provision provides for a credit up to 35% of the health care cost for employers with no more than 25 full-time equivalents and average annual salaries less than $50,000. Contact our office for more information.
As always, we appreciate your business and are eager to answer any questions you may have about how this bill may affect your particular business.
