Congress Passes Small Business Tax Bill

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On September 23, the House passed the Small Business Jobs Act of 2010 (H.R. 5297).  The President has indicated that he will sign the bill into law.

The major provisions of the bill are as follows:

  • – §179 expanded: For tax years beginning in 2010 and 2011, businesses can immediately expense qualifying asset purchases in an amount up $500,000.  The eligible amount is phased out at a  threshold of $2 million;
  • – §179 for (some) real estate: For tax years beginning in 2010 and 2011, taxpayers can elect to treat certain real estate as §179-eligible. Qualifying real estate includes:
    • Qualified leasehold improvements;
    • Qualified restaurant property; and
    • Qualified retail improvement property.
  • – Bonus depreciation extended: The first year 50% bonus depreciation provision is available for property purchased through December 31, 2010;
  • – Luxury auto depreciation increased: As a result of the extension of bonus depreciation, first-year depreciation of automobiles is bumped up $8,000;
  • – Deduction for start-up expenditures increased: Under IRC §195, increased from $5,000 to $10,000 for taxable years beginning in 2010 (only);
  • – Exclusion for small business stock: For purchases made after the date of enactment and before January 1, 2011, the exclusion for gain on the same of small business stock under IRC §1202 is increased to 100%;
  • – Five-year carryback for general business credits: Effective for credits determined in the taxpayer’s first taxable year beginning after December 31, 2009 (one year only), the carryback period for an “eligible small business” is increased from one to five years. In addition, the credit is not subject to the AMT limitation;
  • – Built-in gain period shortened to five years: For taxable years beginning in 2011 (only), the recognition period for the s-corporation built in gains tax is shortened to five years from ten;
  • – Deduction for health insurance for SECA purposes: For 2010 (only), the deduction for self-employed health insurance is also a deduction for purposes of the self employment tax;
  • – Cell phones removed from listed property: Permanent and effective for tax years ending after 2009;
  • – Information reporting required for rental property: Effective for payments made after December 31, 2010, rental real estate is treated as a trade or business for information reporting purposes. According to the bill, the IRS to prescribe de minimis exceptions;
  • – Higher information return penalties: Penalties under IRC §6721 are substantially increased beginning in 2011;
  • – §457 plans can include Roth accounts: For tax years beginning after December 31, 2010; and
  • – Rollovers from elective deferral plans to in-plan Roth accounts allowed: Effective on the date of enactment. Will allow a two-year deferral (2011 and 2012) for rollovers done in 2010.

We will continue to monitor this and other legislation and report to you these important changes in tax law.

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