29 Sep 2010 Small Business Act Signed into Law
On September 27, 2010 the President signed the Small Business Jobs and Credit Act of 2010 (the “Act”) into law. The Act provides for more than $40 billion worth of tax benefits aimed to support economic growth among small businesses. In summary, the Act provides –
- Increased deductions under Section 179 of the Internal Revenue Code (the “Code”). In general, Code Section 179 allows taxpayers the option to immediately deduct the cost of certain property in the year in which such property is placed in service. Previously this benefit was limited to a maximum deduction of $250,000 per year, which began to phase out if the cost of the Section 179 property placed into service during such year was in excess of $800,000. Under the Act, during 2010 and 2011, taxpayers will instead be permitted a maximum deduction of $500,000 per year, which would not begin to phase out until the cost of the Section 179 property placed into service during such year is in excess of $2,000,000. The Act also provides that the Section 179 deduction will be extended to “qualified leasehold improvement property,” “qualified restaurant property” and “qualified retail improvement property.
- Extension of the 50% depreciation deduction for cost of “qualified leasehold improvement property”. This benefit is for 2010 only.
- Increased first year depreciation limits for new automobiles and light trucks or vans to $11,060 and $11,160, respectively. This benefit is for 2010 only.
- Additional deductions for start-up expenses (increased from $5,000 to $10,000), and a later start to the phase-out of such deduction from (phase-out threshold increased from $50,000 to $60,000). This benefit is for 2010 only.
- An extended carryback of eligible general business credits for up to five years, so that taxpayers may use such credits against prior year income. This provision only applies to an “eligible small business”; i.e. a business that is not public and has average annual gross receipts for the three taxable years prior to 2010 of less than $50 million. This benefit is for 2010 only. Additionally, taxpayers may use the eligible business credits to offset any alternative minimum tax liability arising in 2010.
- Increased capital gain exclusions on the sale of qualified small business stock (“QSBS”), i.e. stock of a C-corporation with a tax basis in its business assets not in excess of $50 million. The exclusion increased from 75% to 100% and further eliminates the excluded gain as an item subject to AMT with respect to the sale of QSBS issued between September 27, 2010 and December 31, 2010. There are certain limits on these savings and QSBS stock is subject to certain holding period requirements.
- A deduction of the health insurance costs of an individual and his or her family, for individuals subject to self-employment tax. This benefit is for 2010 only.
- Deferral of gain recognition until 2011 and 2012, on election, for a taxpayer rolling over a 401(k), 403(b) or 457(b) plan to a Roth IRA.
- A shortened period for an S-corporation’s recognition of built-in gain. In general, if a C-corporation becomes an S-corporation, the S-corporation will be subject to tax at 35% rates on all gains that were “built-in” in the C-corporation prior to the time of conversion, if during the 10-year period following the conversion the S-corporation recognizes such gains. The Act provides that the 10-year period shall be reduced to 5 years, so long as the 5th taxable year in the holding period precedes the 2011 taxable year.
- That cell phones are no longer considered “listed property” subject to substantial recordkeeping requirements, but instead taxpayers can deduct or depreciate their cost like other business property.
Small business owners and employees should consider the Act as summarized above, and determine whether they can benefit from its provisions.