Small Business Jobs Act of 2010

On Monday, Sept. 27, President Obama signed the Small Business Jobs Act of 2010. Like other recent legislation to boost the economy, it contains extenders of previous incentives and also adds complexities to an already mind-boggling tax code. However, the most pressing tax issues, such as the expiration of the Bush tax cuts, remain untouched. Some of the major highlights from the Act are as follows.

Small Business Incentives
Unused general business credits can now be carried back five years (instead of one) and forward up to 25 years (instead of 20) for eligible small businesses. The extended carryback provision applies to general business credits determined in tax years beginning after Dec. 31, 2009 and encompasses a large and varied number of credits, including the investment credit, Work Opportunity Tax Credit, research credit (if extended), and the new small employer health insurance credit. The average annual gross receipts for the prior three tax year periods cannot exceed $50 million for a business to be eligible.

Other small business incentives include:

• a deduction for health insurance costs from FICA self-employment income
• an increase in the deduction of start-up expenses of $10,000 (up from $5,000) and phaseout threshold of $60,000 (up from $50,000)
• an increase in the exclusion from 75% to 100% for gain on IRC 1202 stock acquired after Feb. 17, 2009 and before Jan. 1, 2011, provided the stock is held for five years.

General Business Incentives
The Act extends the bonus depreciation provision yet again to assets placed in service in 2010. This provision allows taxpayers to immediately deduct 50% of the cost of most assets with depreciable lives of 20 years or less. Also increased through 2010 and 2011 is the increased Code Sec. 179 expensing that allows small businesses to immediately write-off up to $500,000 of capital assets.

Other general business incentives include:

• a further shortening of the holding period of assets subject to built-in gains from an S corporation conversion, in certain cases
• the removal of cell phones from "listed property," which will make it easier to justify business use

Of Additional Note
Individuals receiving rental income from real property must file information returns for payments for rental expenses of $600 or more during the year beginning in 2011.

The penalty for failing to file informational returns increased to $100 per return. Additionally the calendar year maximum increased from $250,000 to $1.5 million. This could be of particular concern if the provision requiring 1099s for any expense more than $600 goes into effect in 2012 as currently written.

While there are some significant benefits in the Small Business Jobs Act of 2010, many businesses are still struggling to gain access to money. That is why the Act’s lending provisions are so critical. Included are a $30 billion lending fund that will utilize healthy community banks as a conduit to increase lending to small businesses. Also included are $1.5 billion in grants to support at least $15 billion in new small-business lending through existing state-run programs and additional support for SBA loan programs.

We will be reviewing these provisions and will be in touch if they are relevant to our clients’ specific situations. In the meantime, if you would like to discuss these items in more detail, please feel free to contact a member of your service team or Marc Mazella at 330-743-1040.