Accountants CPA Hartford
William Brighenti, Certified Public Accountant
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Office Address:  46 Mildrum Road, Berlin, Connecticut 06037-2423      Phone:  (860) 828-3269      Email:  [email protected]
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Tax Provisions of Small Business Jobs Act of 2010
Small Business Jobs Act's Eight Tax Breaks for Small Businesses
by William Brighenti, Certified Public Accountant, Certified QuickBooks ProAdvisor

Accountants CPA Hartford, LLC: William Brighenti, Certified Public AccountantOn September 27, 2010, President Obama signed into law H.R. 5297, the Small Business Lending Funding Act. The tax title of this bill, the "Small Business Jobs Act of 2010" (the Act), includes a number of important tax provisions for businesses large and small, and changes for individuals as well

President Obama declared that the bill will cut taxes and make more loans available to entrepreneurs, explaining that these measures were necessary in order to create conditions for small businesses to hire more people since small businesses produce most of the new jobs in this country.  The Act’s eight tax breaks are expected to provide $55 billion in tax relief to businesses over the next year alone.

The eight tax breaks for small businesses contained in the Small Business Jobs Act are as follows:
  1. Capital gains taxes will be completely eliminated for key investments in small businesses, driving capital to as many as 1 million small businesses.  Small businesses are regarded as those having annual gross revenues of less than $50 million. Under Sec. 1202, 50% of capital gains from certain small business stock had been excluded from taxes.  The exclusion was increased to 75% under the Recovery Act.  Now 100% of the gain is to be excluded from the sale of Qualified Small Business Stock (QSBS) acquired on or before December 31, 2010, and held for at least five years.

    In addition, no amount of the exclusion need be reported as an item of tax preference.  Previously, 7% of any gain excluded under Section 1202 from the sale of qualified small business stock would be included in the computation of Alternative Minimum Taxable Income.

  2. The amount of capital investments that can be immediately expensed under Section 179 is increased to $500,000 for the years 2010 and 2011.  Prior to the Act’s passage, only $250,000 would have been eligible for expensing under Section 179 for 2010, and only $25,000 for 2011.

    In addition, for the tax years 2010 and 2011, Section 179 property is expanded to include any qualified real property, such as qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property; however, not more than $250,000 of the $500,000 may be attributable to qualified real property.  This is the first time that qualified real property has been eligible for Section 179 expensing.

  3. The Act extends the Recovery Act’s provision for “bonus depreciation” through 2010.  Additional first-year depreciation may be taken on certain qualified property placed in service this year.  The amount of the additional depreciation is 50% of the basis of the property placed in service.  Bonus depreciation would have expired after December 31, 2009 if it were not for its extension for 2010 in this bill.

  4. The bill removes cellular telephone and similar telecommunications equipment from “listed property” classification, thereby relieving it from the listed property rules, and relaxing the rules on their deductibility.  Listed property is that which is often purchased for business and personal use, and the extent of personal use can limit and restrict the amount of depreciation and Section 179 taken on the property.

  5. The carryback of general business credits previously allowed under IRC Sec. 39(a) is increased from 1 year to 5 years, allowing certain small businesses—Eligible Small Businesses (ESB)—to offset as many as five years of taxes as well as the Alternative Minimum Tax.  If there is insufficient taxable income in those years to offset and absorb these tax credits to generate tax refunds, then the remaining credits can be carried forward for 20 years.

    For purposes of the carryback, general business credits are all of the thirty-five business credits listed in Section 38(b) of the Internal Revenue Code, including:  General Business Credit; Investment Credit; Work Opportunity Credit; Credit for Increasing Research Activities ; Low-Income Housing Credit; Disabled Access Credit; Empowerment Zone Employment Credit; Indian Employment Credit; New Markets Credit; Credit for Small Employer Pension Plan Startup Costs; Credit for Employer-Provided Childcare Facilities and Services; etc.

  6. Beginning this year, the bill would change the penalty for failing to report certain tax transactions from a fixed dollar amount to a percentage of the tax benefits from the transaction.  Penalties for errors in tax reporting based on a fixed dollar amount have been observed to impose a disproportionately large penalty on small businesses in certain circumstances.  The amount of the penalty with respect to any reportable transaction shall be 75 percent of the decrease in tax shown on the return as a result of such transaction (or which would have resulted from such transaction if such transaction were respected for Federal tax purposes).

  7. For 2010 only, all self-employed business owners, members of limited liability companies, 2% S-Corporation shareholders who are employees can deduct health insurance costs for themselves and their families in computing self-employment taxes on their tax returns.  By allowing the deduction of health insurance premiums for business owners on the business tax returns and schedules of the pass-through entities, rather than as adjustments to gross income on Form 1040 of the owners, this provision is estimated to provide over $1.9 billion in tax cuts for two million entrepreneurs since the health insurance premiums will not be subject to the self-employment taxes as computed on Schedule SE.

  8. The Act temporarily increases the amount of start-up expenditures entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000.   These expenses to open up a new business, incurred while you are setting up or researching the business, may include the cost of advertising, travel, market research or training employees prior to opening the business.
It is imperative for the small business owners to become aware of these tax breaks since most of them are only available for this year and/or next year.  If you have any questions on these new tax cuts, please contact us now by calling us at (860) 828-3269 or by following this link:  Accountants CPA Hartford, LLC.

This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice.  For further information, please consult appropriate professional advice from your attorney and certified public accountant. 

Have a tax, a QuickBooks, or an accounting question?  Please feel free to submit it under "Comments" on our blog, Accounting, QuickBooks, and Taxes by William Brighenti, Certified Public Accountant, Accountants CPA Hartford, LLC.  For information and assistance on any tax, QuickBooks, or accounting issue, please visit our website:  Accountants CPA Hartford, LLC.

If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.  The above tax advice was written to support the promotion or marketing of the accounting practice of the publisher and any transaction described herein.  The taxpayer recipients of this offering memorandum should seek tax advice based on their particular circumstances from an independent tax advisor.

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