The recently enacted Small Business Jobs Act of 2010 includes valuable individual and business tax incentives. Many of the $12 billion tax incentives are temporary so taxpayers have only a short window in which to take advantage of them. This letter highlights some of the tax incentives and revenue raisers in the new law.
General Business Provisions
Bonus Depreciation. The new law extends a popular business tax incentive: bonus depreciation. An additional first-year depreciation deduction equal to 50 percent of the adjusted basis was available for qualified property placed in service in 2008 and 2009. The new law extends bonus depreciation for qualified property acquired and placed in service during 2010. Also for 2010, the maximum first-year depreciation for passenger automobiles eligible for bonus depreciation is $11,060.
Code Section 179 Expensing. The new law increases the maximum amount a taxpayer may expense under Code Section 179 to $500,000 and raises the phase-out threshold to $2 million. Enhanced Section 179 expensing is available for tax years beginning in 2010 and 2011. The new law also allows taxpayers to expense qualified leasehold investment property, qualified restaurant property and qualified retail improvement property. The maximum amount with respect to real property that may be expensed, however, is limited to $250,000.
Small Business Provisions
- Qualified Small Business Stock. The American Recovery and Reinvestment Act of 2009 temporarily increased the percentage exclusion for qualified small business stock acquired after February 17, 2009 and before January 1, 2011 to 75 percent. The new law raises the exclusion to 100 percent for qualified stock issued after September 27, 2010 and before January 1, 2011. The stock must be acquired at original issue from a qualified small business and held for at least five years.
- General Business Credit. The new law extends the carryback period for eligible small business credits from one to five years and allows an eligible small business credit to offset AMT. The average annual gross receipts of the small business for the prior three tax years cannot exceed $50 million. The extended carryback and AMT provisions are temporary and only apply to credits determined in the taxpayer’s first tax year beginning after December 31, 2009.
Provisions for Individuals
- Retirement Savings. Under the new law, if certain retirement plans set up a qualified designated Roth contribution program, a non-Roth account under the plan may be converted to a Roth account within the same plan. If an amount is converted in 2010, the taxable conversion amount may be included ratably in income in 2011 and 2012 unless the taxpayer elects otherwise. The designated Roth provision in the new law is effective September 27, 2010.
- Self-Employed Health Insurance. The new law allows the deduction for the cost of health insurance in calculating net earnings from self-employment for purposes of self-employment taxes. The provision is temporary and only applies to the self-employed taxpayer’s first tax year beginning after December 31, 2009.
- Rental Property Expense Payments. The new law imposes information reporting requirements on certain recipients of rental income from real estate. Rental income recipients making payments of $600 or more to a service provider will file an information return (i.e., Form 1099) with the IRS and the service provider. The reporting provision applies to payments made after December 31, 2010.
- As we have highlighted, the new law is much more than a small business bill, although many small businesses and their owners will benefit greatly from its provisions. As mentioned, many of the tax incentives are temporary, requiring prompt action to take full advantage of them. Please contact our office so we can help you design a tax strategy to maximize your benefits from the new law.