President Obama signed the Small Business Jobs Act of 2010 into law in late September, 2010. The Act includes several provisions that could help reduce your tax liability for 2010 and 2011. Some of the provisions expire in 2010, however, so you’ll need to act quickly to take advantage of them.
Changes for Businesses
Increased Section 179 Expense Limits
Section 179 allows you to deduct the cost of qualified business equipment in the year you place it into service, instead of depreciating it over several years. For both 2010 and 2011, and later extended through 2014, the Act increases the amount you can claim as a Section 179 deduction to $500,000, (from $250,000) with a phaseout that starts if your purchases for the year are more than $2 million.
The definition of expenses that could potentially qualify for Section 179 treatment has been expanded to include leasehold improvements and improvements to restaurant and retail property. Although you can still deduct up to a $500,000 for such items as computers and machinery, the maximum you can expense for the newer categories is limited to $250,000.
First-year Bonus Depreciation Extended
Bonus depreciation allows you to take an additional first-year allowance of 50% of the eligible property’s cost. That provision, which previously covered equipment placed in service during 2009, has been extended for property acquired and put into use during 2014. Bonus depreciation allows you to recover costs more quickly; it is not subject to purchase limits.
General Business Credit Enhanced
This credit includes numerous separate business-related tax credits that are combined to calculate an overall limit based on your tax liability. Previously, if the credit you were eligible for exceeded the limit, you could carry the excess back for one year. If you still had a credit remaining, you could carry it forward 20 years. For 2010 only, the Act now allows eligible small businesses to carry back excess general business credits for up to five years, providing an immediate tax benefit.
Cell Phones No Longer Considered Listed Property
Beginning in 2010, employer-provided cell phones are no longer considered to be “listed” property. That means small businesses can deduct cell phone use without the burdensome extra documentation requirements that applied in previous years.
Increased Deductions for Business Start-Up Expenses
For tax years beginning in 2010, the Act allows you to deduct up to $10,000 of business start-up costs--that’s double the previous $5,000 limit. The deduction starts to phase out if your expenditures exceed $60,000. You can deduct any start-up costs that are not immediately deductible over 15 years.
Changes for Individual Taxpayers
Health Insurance Costs Reduce Self-employment Taxes
In 2010 only, if you are self-employed, the Act allows you to deduct health insurance that you buy for yourself and your spouse, dependents and children under age 27 before figuring your self-employment taxes. Although the costs previously were deductible when figuring net income, you still had to pay the self-employment taxes which cover Social Security and Medicare.
Exclusion Increased for Sale of Small Business Stock
The Act temporarily increases the capital-gains tax exclusion on sales of qualified small-business investments. If you acquire the company’s stock between September 27, 2010 and December 31, 2014, and hold the stock for five years, you can exclude 100 percent of any gains from regular and alternative minimum tax calculations.
Expanded Roth Retirement Plan Availability
If you are a government employee who participates in a 457(b) retirement savings plan, starting in 2011, these plans now may allow you to make Roth (after-tax) contributions. There’s also greater flexibility for rollovers to Roth plans. Starting immediately, 401(k) plans, 403(b) plans and 457(b) plans may allow their participants to roll over pre-tax savings directly to Roth accounts. The rollover amount will be included in your taxable gross income. Under prior law for 2010 rollovers only, you can choose to have half of the income taxed in 2011 and half in 2012.