On September 27, 2010, President Obama signed the Small Business Jobs Act of 2010. The law provides a $30 billion fund to encourage community banks to lend to small businesses, and it includes $12 billion in tax cuts for businesses.
Here are the highlights of the tax provisions included in the law.
- Bonus depreciation. First-year 50% bonus depreciation for new business equipment purchases is extended through 2010. For property with a recovery period of ten years or longer and for certain transportation property, bonus depreciation is extended through 2011. Bonus depreciation increases the maximum first-year depreciation limit for qualifying business automobiles to $11,060, an $8,000 increase over the former $3,060 limit.
- Section 179 expensing. The first-year expensing limit for the purchase of new or used business equipment is doubled for 2010 and 2011 to $500,000. Also, the dollar threshold at which the maximum deduction is phased out is increased from $800,000 to $2 million. The law allows taxpayers, for the first time, to elect to treat certain real property as eligible for first-year expensing. Real property that qualifies includes qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. The expensing limit for these properties is $250,000, and there are limits on the carryover allowed for qualified real property deductions.
- Business credits. Normally, general business credits can’t offset alternative minimum tax (AMT) liability. The law removes this restriction for 2010 for an “eligible small business” and permits carrybacks of general business credits for five years. To be an eligible small business, the business must be a partnership, sole proprietorship, or corporation whose stock isn’t publicly traded, and average annual gross receipts for the prior three years must have been no more than $50 million.
- Cell phones. The law eliminates the strict substantiation requirements for cell phones and similar personal communication devices used in business. Businesses will be able to take a deduction for devices provided to employees for business purposes without having to include the value of incidental personal use as income to employees.
- Qualified small business stock. Investors in qualified small business stock may be able to exclude 100% of the gain from the stock’s sale for stock purchased from September 28, 2010, through December 31, 2010, and held for five years.
- Start-up expenses. The law increases the deduction for business start-up expenses in 2010 from $5,000 to $10,000. The deduction phases out once expenditures exceed $60,000, an increase from the prior phase-out threshold of $50,000.
- Self-employed health insurance. For 2010, self-employed individuals may deduct the cost of health insurance for themselves and their families in computing their self-employment tax liability.
- Roth accounts. The law allows participants in 401(k), 403(b), and 457(b) retirement plans to roll funds over to a Roth IRA. For rollovers done in 2010, the resulting taxable income can be included in income for 2011 and 2012, or it can be reported in full in 2010 income.
- Rental expenses information reporting. Beginning in 2011, individuals who receive income from rental property are required to file information returns (Form 1099) with the IRS for payments of $600 or more for rental property expenses. A copy of Form 1099 must be sent to the provider of the services. There are some exceptions to the rental property expense reporting requirement, including an exception for those in the military who rent out their homes temporarily.
For additional information about the provisions that may affect you, contact our office.