Small Business Jobs Act of 2010, P.L. 111-240

Small Business Jobs Act of 2010, P.L. 111-240, was signed September 27, 2010. The Act contains countless provisions intended to goose up the economy and cover some of the costs of doing so. The Act is so long and complex that the following is barely a tasting menu.

General Business Incentives

Expensing: If you buy equipment you have to depreciate it over a number of years, but Code Section 179 may permit you to write it off in the year of purchase. The maximum is increased retroactively to $500,000 for 2010 and 2011 ($25,000 after 2011). If you bought over $800,000 this bennie was phased out. That threshold is increased to $2M of annual purchases ($200,000 after 2011). Previously only tangible personal property qualified (e.g., a machine). Now up to $250,000 of certain real estate, qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property (as defined in Code Sec. 168(e)(6),(7) and (8)), may also be expensed.

Bonus Depreciation: If you buy “qualified property” ½ can be deducted (“bonus depreciation”) in the year placed in service (your tax basis is reduced by this so you can’t double dip with big depreciation deductions later). 50% bonus depreciation will be allowed retroactively for certain property purchased and placed in service during 2010 (2011 for certain property)  including most types of new property and qualified leasehold improvements other than buildings. Contractors using percentage of completion method are allowed to treat qualified property as if bonus depreciation did not apply permitting them to benefit from bonus depreciation even if they do not complete their contracts within the same year. Effective for property placed in service in 2010.  Bonus depreciation of up to $8,000 allowed for luxury automobiles purchased and placed in service during calendar year 2010 (thus making the total first year depreciation for luxury automobiles $11,060).

S Corp: S Corporation built-in gains holding period reduced from 10 years to 5 years for sales occurring in 2011 if the 5th year in the recognition period precedes the taxable year beginning in 2011 (generally companies electing S status before 2006).

PDAs: Deductions for cell phones, PDAs and the Blackberry surgically glued to my hip, all had required detailed logs proving business use. The Act eliminated these burdensome rules by no longer treating them as “listed property.”

Small Business Incentives

Credits: Carryback period for general business credits extended to five years for eligible small businesses including non­publicly traded corporations, partnerships and sole proprietorships; average annual gross receipts for the prior three tax years cannot exceed $50 million (flow through owner must also meet gross receipts test). Effective for first tax year beginning after 12/31/09. Eligible small business credits are allowed to offset Alternative Minimum Tax.

Capital Gains: 100% exclusion for capital gain from the sale of qualified small business stock acquired after September 27, 2010 and before January 1, 2011 if the stock is owned longer than five years. Additionally the Alternative Minimum Tax preference item attributable for that sale has been eliminated.

Start Up Costs:  Prior law let you deduct up to $5,000 of “start-up expenses” in the year your new business launched and amortize the balance over 180 months. The $5,000 figure was reduced by the excess of total start-up costs over $50,000. Deduction for start-up expenditures is increased to $10,000 for 2010, and phase-out threshold increased to $60,000.

Health Insurance: Deduction for health insurance of business owners (sole proprietors, partners, members, and >2% S Corporation shareholders) allowed in calculating self-employment tax for 2010 (first tax year beginning after December 31, 2009).

Thanks to Julie A. Welch (Runtz) [].

Probate: If you have few or no family or relatives consider executing an affidavit of kinship confirming this while you are alive to make the eventual probate process easier. Proactively call the probate (surrogate) court and ask what other steps might prove helpful.

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