The Small Business Jobs Act of 2010, signed by President Obama on Sept. 27, 2010, includes a bevy of tax breaks for small business owners. Here are the highlights of this important new legislation.
Section 179: For tax years beginning in 2010 and 2011, your business can immediately write off up to $500,000 of qualifying assets (including purchased software). The new $500,000 maximum allowance doubles the previous $250,000 maximum deduction. More good news: the threshold for the Section 179 deduction phase-out rule jumps from $800,000 to $2 million for tax years beginning in 2010 and 2011. Also, for tax years beginning in 2010 and 2011, up to $250,000 of qualified real property costs can also be deducted under Section 179. Previously, real property costs did not qualify for Section 179 deductions.
Bonus depreciation: The new law retroactively reinstates 50% first-year bonus depreciation for qualifying new (not used) assets placed in service by Dec. 31, 2010. This tax break had officially expired after 2009, but it’s now been resurrected for qualified assets placed in service by year-end.
Qualified small business stock: Previously, you could exclude up to 75% of the gain from qualified small business stock (QSBS) acquired between Feb. 18, 2009 and Dec. 31, 2010 if you held the stock more than five years. The new law increases the potential gain exclusion to 100% for QSBS acquisitions made between Sept. 28, 2010 and Dec. 31, 2010. For these shares, the new law also removes the QSBS gain exclusion from the list of items that count as income for alternative minimum tax (AMT) purposes.
BIG tax: When a C corporation converts to an S corporation, it may be liable for a “built-in gains” (BIG) tax on gains recognized in its first 10 years of operation. First, the 10-year recognition period was reduced to seven years for built-in gains recognized in tax years beginning in 2009 and 2010. Now the new law cuts the recognition period to five years for gains in tax years beginning in 2011.
Start-ups: The new law increases the maximum deduction for qualified start-up expenditures to $10,000 for tax years beginning in 2010 (up from $5,000). The threshold for the start-up deduction phase-out rule increases from $50,000 to $60,000, but only for tax years beginning in 2010.
AMT: Normally, general business credits can’t offset the AMT but the new law allows an “eligible small business” an AMT offset for general business credits arising in tax years beginning in 2010. Also, the business can carry back general business credits arising in tax years beginning in 2010 for up to five years.
Health insurance deduction: For 2010 only, a self-employed individual can reduce his or her self-employment income by deductible health insurance premiums when calculating the self-employment tax.
Cell phones: Cell phones and similar devices used for business will no longer be subject to super-strict record keeping requirements for business versus personal use, retroactive to tax years beginning after 2009.
Retirement accounts: Several provisions help facilitate transfers from 401(k), 403(b) and 457 retirement plans to designated Roth accounts.
This is only a brief summary of several key provisions in the new small business law. Contact our office at Toll Free: 1-800-878-4051 for more details.