Washington lawmakers have done their thing again, stitching together a patchwork of small business tax changes that aim to nudge business owners toward spending and hiring. This one's called the Small Business Jobs Act of 2010 (SBJA) and it's a wide-ranging mashup of tax incentives and other changes you need to know about. Here's the bullet-point rundown of the top 11 changes in the new law. We'll provide a detailed description of each item from top tax experts at CBIZ in a series of posts starting now:
- Extends bonus depreciation
- Extends and doubles Section 179 expensing
- Provides for 100 percent gain exclusion for qualified small business stock
- Relaxes the S corporation built-in gain conversion rules
- Allows five-year carry-backs of the general business credit for qualified taxpayers
- Removes cell phones from the listed property rules
- Enhances the deduction for start-up expenses
- Provides retroactive Code Sec. 6707A penalty relief
- Allows a self-employment income tax deduction for 2010 health care expenses
- Increases failure-to-file penalties on information returns
- Establishes a new information reporting rule for rental property expense payments
The Return of Bonus Depreciation
A highly-popular provision allowing first-year, 50% "bonus depreciation" that expired in 2009 is back. The SBJA reinstates bonus depreciation for most property through 2010, and for certain longer-lived property and specific types of transportation property through 2011. Eligible property generally includes these three items:
- new depreciable property with a recovery period of 20 years or less;
- computer software, and;
- qualified leasehold improvements.
The new law also extends the $8,000 increase in luxury auto depreciation limits on property eligible for bonus depreciation.
With only a few months left in the year, tax experts at CBIZ question how much additional investment this provision will create. But for business owners who've already made eligible investments during 2010, its a windfall. (Also note that Congress failed to extend the provision allowing corporations to utilize accumulated research and development or minimum tax credits in lieu of claiming bonus depreciation.)
Contractors using the "percentage-of-completion" accounting method generally must include any bonus depreciation taken when calculating the percentage of completion. To ease this burden for qualifying property placed in service in 2010, however, no bonus depreciation factors into the cost. Qualifying property generally is new depreciable property with a recovery period of 7 years or less.
Our next post on changes made by the Small Business Jobs Act of 2010 will explain the extension and doubling of Section 179 expensing.