HORNE Tax Alert

Small Business Jobs Act of 2010

On September 27, 2010, the President signed into law the Small Business Jobs Act of 2010.  There are numerous significant tax provisions within the new law.

Some of the most important provisions affecting businesses include the following:

50% Bonus Depreciation Retroactively Extended to 2010 - for property placed in service in 2010, a first-year deduction of 50% of the cost of qualified fixed assets is retroactive to January 1, 2010.  This benefit is immediately available to all taxpayers regardless of their year end.

Doubled Expensing Limit on Fixed Assets - for tax years beginning in 2010 and 2011, the maximum amount allowed for first-year expensing of qualified fixed asset purchases under Internal Revenue Code Section 179 is doubled from $250,000 to $500,000 per year.  The beginning threshold for phase-out is $2,000,000 of acquisitions.

Leasehold Improvement, Restaurant and Retail Improvement Property Expensing - for tax years beginning in 2010 or 2011, qualified real property is eligible for $250,000 of expensing under Internal Revenue Code Section 179 as part of the overall limit.

Five-year General Business Credit Carryback - for tax years beginning in 2010, 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.

General Business Credits Can Offset Alternative Minimum Tax (AMT) - for tax years beginning in 2010, eligible small businesses, as defined above, would be able to use all types of general business credits to fully offset their AMT liability.

Health Insurance Deductible for Self-Employment Tax - for a tax year beginning in 2010, the deduction for health insurance costs of self-employed taxpayers is deductible in computing net earnings from self-employment thereby reducing self-employment tax.

Among other provisions affecting businesses are the following:

Doubled Deduction for Startup Expenses - for a tax year beginning in 2010, the deduction for startup expenses is increased from $5,000 to $10,000 with increased phase-outs.

Cell Phones No Longer Listed Property - beginning in 2010, cell phones are removed from the definition of listed property under Internal Revenue Code Section 280F.

S Corporation Built-in Gains Period Shortened - for any tax year beginning in 2011, the holding period of assets subject to the built-in gains tax is shortened from 10 years to 5 years.
Some of the revenue raising provisions affecting businesses include:

1099 Reporting for Rental Property Expenses - for payments made after December 31, 2010, taxpayers receiving rental income from real property would have to file information returns with the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses.  Exceptions will be provided for taxpayers renting their primary home, taxpayers whose income doesn't exceed an IRS-determined minimal amount, and those for whom the reporting requirement would create a hardship (under IRS regs).

Penalties for Late Filing Information Returns Increased - for information returns required to be filed after December 31, 2010, penalties for failure to timely file information returns with the IRS are increased.  The first-tier penalty is increased from $15 to $30 with the calendar year maximum increasing from $75,000 to $250,000.  For small filers, the calendar year maximum is increased from $25,000 to $75,000.

Another revenue raising provision that also provides new flexibility to taxpayers is:

Roth IRA Conversion for State and Local Government Retirement Savings Plans - for tax years beginning after December 31, 2010, retirement savings plans sponsored by state and local governments (457(b) plans) are able to include Roth accounts.  For distributions after the date of enactment, 401(k), 403(b), and governmental 457(b) plans can permit participants to roll their pre-tax account balances into a Roth account.  If the rollover is made in 2010, the participant could elect to pay the tax in 2011 and 2012.

Expired and expiring tax provisions not in the Small Business Jobs Act of 2010 include the following:

  • Work Opportunity Tax Credit for Hurricane Katrina Employees (expired August 2009)
  • Research and Development Tax Credit (expired at the end of 2009)
  • Alternative Minimum Tax Patch (lower exemption amount for 2010)
  • Expiration of Bush Tax Cuts including:
    • Top two tax rates increasing from 33% and 35% to 36% and 39.6% in 2011
    • Estate tax fix (no estate tax in 2010/$1 million exemption with 55% top rate in 2011)
    • Capital gains and dividend tax rates (15% for both in 2010 moving to 20% or higher in 2011)

Each of these will likely be addressed in a lame-duck session of Congress after the elections.

For more information, please contact your HORNE tax consulting advisor or local HORNE office.