Tuesday, September 28, 2010

Small Business Jobs and Tax Relief Bill

President Obama signed the Small Business Jobs Act of 2010 (HR 5297) yesterday.

The Act expands loan programs through the SBA, strengthens small business preference programs for federal government projects, provides export incentives, and offers a variety of small business tax breaks. Many of the provisions are effective immediately.

These changes are in effect for 2010 and provide some great tax planning opportunities:

  • Increased section 179 expensing
  • Extension of 50% first-year bonus depreciation
  • Zero capital gain tax rate from IRC Sec. 1202 small business stock
  • Increased IRC Sec. 195 deduction for business startup expenses
  • Five-year carryback of general business credits
  • New deduction for self employed health insurance costs on the Schedule C
  • Removal of cell phones from the definition of listed property
You can read more details in this Journal of Accountancy article on the House Bill.


Greg said...

Hey Brian:

Would you mind unpacking some of the implications of these Small Business tax breaks?

Appreciate it!
Greg Camenzind

Brian C. Setzler said...


Each one of them could be their own blog post and I'm probably not going to blog about all those tax details.

I will say that they are designed to reduce taxes for small businesses so they can keep more money for working capital and investments.

I will briefly cover these:

Increased Sec. 179 expensing and extension of first-year bonus depreciation allow a company to right off larger portions of capital investment sooner (with bonus depreciation) or immediately with Section 179. These essentially provide larger and faster depreciation than MACRS.

ZERO cap gain on IRC Sec 1202 small business stock is about as good as it gets. ZERO tax rate on the gain is pretty hard to beat.

$10,000 rather than the usual $5,000 of business startup expenses can be deducted in the first year of operations because of this bill. Anything over the limit is generally written off over 180 months.

The general business credit change to allow 5-year carryback rather than the usual 1-year. A carryback allows you to potentially recoup taxes paid in prior years (in this case over the previous 5 years).

The cell phone change is a nice update for 2010. Cell phone substantiation rules were written in the 80s when only the wealthiest had them. Now you won't have to document and substantiate the business usage percentage which will simplify record keeping.

How's that?