The recently enacted 2010 Small Business Jobs Act includes a wide-ranging assortment of tax breaks and incentives for small business. Here's a brief overview of the tax changes in the new law.
Enhanced Section 179 Depreciation
The current law allows small businesses the ability to elect to write off the cost of capitalized expenses in the year paid rather than over a number of years. Under pre-2010 Small Business Jobs Act law, taxpayers could expense up to $250,000 of qualifying property—generally, machinery, equipment and certain software—placed in service in tax years beginning in 2010. Under the new law, for tax years beginning in 2010 and 2011, the $250,000 limit is increased to $500,000.
Extension of 50% bonus first-year depreciation
Businesses are allowed to deduct the cost of capital expenditures over time according to depreciation schedules. In previous legislation, Congress allowed businesses to more rapidly deduct capital expenditures of most new tangible personal property, and certain other new property, placed in service in 2008 or 2009, by permitting the first-year write-off of 50% of the cost. The new law extends the first-year 50% write-off to apply to qualifying property placed in service in 2010.
No Gain on Sale of Small Business Stock
Before the 2010 Small Business Jobs Act law, individuals could exclude 75% of their gain on the sale of qualified small business stock (QSBS) held for at least five years. To qualify, QSBS must meet a number of conditions (e.g., it must be stock of a corporation that has gross assets that don't exceed $50 million, and the corporation must meet active business requirements). Under the new law, the amount of the exclusion is temporarily increased, to 100% of the gain from the sale of qualifying small business stock that is acquired in 2010 after date of enactment and held for more than five years. In addition, the new law eliminates the alternative minimum tax (AMT) preference item attributable for that sale.
Expanded Usage of Small Business Credits
Generally, a business's unused general business credits can be carried back to offset taxes paid in the previous year, and the remaining amount can be carried forward for 20 years to offset future tax liabilities. Under the new law, eligible small businesses can carry back unused general business credits for five years. Eligible small businesses consist of sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.
In addition, the new law allows eligible small businesses to use all types of general business credits to offset their AMT in tax years beginning in 2010.
Boosted deduction for start-up expenditures
The new law allows taxpayers to deduct up to $10,000 in trade or business start-up expenditures for 2010. The amount that a business can deduct is reduced by the amount by which startup expenditures exceed $60,000. Previously, the limit of these deductions was capped at $5,000, subject to a $50,000 phase-out threshold.
Deductibility of health insurance for the purpose of calculating self-employment tax
The new law allows business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in calculating their 2010 self-employment tax.
1099 reporting required for Rental Real Estate
For payments made after Dec. 31, 2010, the new law requires persons receiving rental income from real property to file information returns with IRS and service providers reporting payments of $600 or more during the tax year for rental property expenses.
