Small Business Jobs Act of 2010 Into Law – What it Means for You

On September 27, 2010 President Obama signed into law a $12 billion tax incentives package targeted towards small businesses.

Although, the law is titled “Small Business,” its provisions impact different sized businesses as well as individuals. For example the law extends, for one additional year through December 31, 2010, the 50% first-year depreciation bonus. Businesses of all sizes can take advantage of this provision. However, there is a very short window of opportunity as purchases must be made and placed into service on or before December 31, 2010.

Another benefit for more than just small businesses is that the law removes employer-provided cell phones and similar personal communication devices from “listed property” for 2010. This removes the strict substantiation requirements of use and the limitation on depreciation deductions and excludes the personal use from gross income of the employee.

Some of the law’s small business incentives include:

• Increased Code Sec. 179 expensing – the law increases the maximum deduction for 2010 and 2011 from $250,000 to $500,000 on the cost of qualified leasehold improvement, restaurant and retail property, and the investment limit from $800,000 to $2 million for 2010 and 2011.
• 100% exclusion for qualified business stock – the law increases the exclusion from small-business capital gains from 50% to 100% for eligible stock acquired after the date of enactment and before January 1, 2011.
• Extended carryback of general business credit – the law extends the carryback period for eligible small business generated credits generated in 2010 to five years.
• Deduction of health insurance for self-employed individuals – self-employed individuals have been able to deduct the cost of heath insurance from gross income for regular tax purposes but not from self-employment income when calculating self-employment taxes. The law now provides that a self-employeed individual can deduct the cost of health insurance when calculating self-employment taxes.
• Penalty relief Code Sec. 6707A – the law limits the penalty for failure to disclose reportable transactions based on the resulting tax benefits.
• Increased deduction for start-up expenses – the law temporarily raises the amount a taxpayer can deduct as a start-up business from $5,000 to $10,000, and increases the phase-out threshold from $50,000 to $60,000.

The law also includes provisions to raise revenue to offset its $12 billion in tax relief such as expanding ROTH IRA conversions from 401(k) plans, new information reporting on rental property expense payments and higher failure to file penalties on information returns.

For more details on the incentives and the not-so-friendly revenue raisers, click here.