Tax Savings and Opportunities of the Small Business Jobs Act of 2010 (SBJA) (H.R. 5297)

In September of 2010, the Small Business Jobs Act was passed in an effort to encourage business investment in the struggling economy.  The major tax breaks include the following:

• Increased Section 179 Expensing – For the years 2010 and 2011, business taxpayers can expense certain capital expenditures as an immediate current year write-off up to $500,000 (previously $250,000).   The amount allowed as a deduction starts phasing out if total qualifying expenditures exceed $2,000,000 (previously $800,000).   Additionally, for the first time some real property qualifies for Section 179 expensing including: certain leasehold improvements, restaurant property and retail property.
• Extension of Bonus Depreciation - Bonus depreciation provisions previously expired at the end of 2009.  The provision has been extended through 2010 to allow a 50% first year write-off on most new tangible property.
• Gain Exclusion on Small Business Stock – If qualified small business stock (QSBS) is acquired after September 27, 2010 and before January 1, 2011 and held for five years, then 100% of the gain on the sale of such stock will be excluded from taxable income and not treated as a tax preference item for alternative minimum tax (AMT).
• Extended Carryback of General Business Credits - Certain small business may now carryback unused credits five years (previously one year) and also utilize such credits to offset AMT.
• Increased Deduction for Business Start-up Expenditures – New businesses may now take a first-year deduction of $10,000 (previously $5,000) for start-up costs.  This deduction begins phasing out if a business spends over $60,000 (previously $50,000).
• Deduction of Health Insurance – Business owners are now allowed to deduct the cost of health insurance in calculating self-employment (SE) tax.

The SBJA also includes provisions that will help pay for the breaks highlighted above, such as:

• Certain rental property owners will now be required to file 1099s for service providers paid over $600 after 2010. 
• Penalty increases for information returns after 2010.
• Governmental 457 retirement plans will be eligible for ROTH rollovers after September 27, 2010.
• Governmental 457 retirement plans will be allowed to treat deferrals as ROTH contributions after 2010.
• Nonqualified annuities can now receive a partial contract stream of payments.

The SBJA provides many tax planning opportunities for 2010 and beyond.  We will be glad to discuss any of these items with you in relation to your personal situation to capitalize on the tax breaks available.

/Posted by Lisa DeVaughn Foley, CPA