By: Patrick Barker
On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010. The bill includes many provisions targeted to assist small business operations as well as several revenue-raising provisions. Selected provisions are discussed below:
Small Business Tax Relief
- Section 179 Expensing: For 2010 and 2011, the maximum Section 179 expense deduction has been increased to $500,000 and begins to phase out once the cost of eligible property exceeds $2 million. For the first time, qualified leasehold improvements are included in the definition of eligible property and can be expensed up to $250,000.
- Bonus Depreciation: 50% first-year bonus depreciation has been extended through 2010. This extension is retroactive to January 1, 2010. For certain automobiles, the depreciation deduction limitation is increased by $8,000. Therefore, from a tax standpoint, it would be better to purchase a business vehicle in 2010 instead of 2011.
- Cell Phones: Cell phones are removed from their current classification as listed property. As a result, the value of personal use of a cell phone or other similar device provided to an employee primarily used for business purposes may be excluded from the employee’s gross income.
- Business Credits: Beginning in 2010, eligible small business credits can be carried back five years.
- Startup Expenses: For 2010 only, $10,000 of start up expenditures may be immediately deducted. Previously this amount was $5,000. The deduction is reduced by the amount by which the start-up expenditures exceed $60,000.
- Self-Employed Individuals: For 2010 only, a self-employed individual may deduct the cost of health insurance for themselves, spouses, dependents, and children under 27 years old when calculating self-employment income for the purposes of self-employment taxes.
- Reporting Rental Expenses: Beginning in 2011, recipients of rental income from real estate who make payments of more than $600 to a service provider during the year are required to provide an information return (typically 1099-MISC) to the IRS and to the service provider.
- Information Returns: Beginning in 2011, penalties for file to file a correct information return will increase. First-tier penalties increase from $15 to $30 with a calendar year maximum increase from $75,000 to $250,000. Second-tier penalties increase from $30 to $60 with a calendar year maximum increase from $150,000 to $500,000. Third-tier penalties increase from $50 to $100 with a calendar year maximum increase from $250,000 to $1.5 million. The minimum penalty for each intentional failure-to-file will increase from $100 to $250.
To take full advantage of these provisions and to minimize the burden of the new reporting requirements, please contact our office.