Tax Highlights of Small Business Jobs Act of 2010

Written by Briana Cavanaugh

October 8, 2010

Thank you to Iryna Oreshkova, CPA for summing up this information!

On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010. The objective of this bill is to provide incentives to stimulate business investment and spending. Like many recent tax bills, most of the provisions were not made permanent.

General Business Incentives

Bonus Depreciation – the elective 50% first-year bonus depreciation is extended through the end of 2010. This is not to be confused with the Sec. 179 small business expensing provision discussed below. To qualify, the equipment must be purchased and placed in service on or before December 31, 2010. Also, depreciation deduction allowed in the first year with respect to passenger automobiles is increased to $11,060 (from $3,060) for taxpayers who elect the bonus depreciation on the automobiles.

Sec. 179 Expensing – For 2010 and 2011, the maximum deduction for qualifying property placed in service during the year is increased to $500,000 (from $250,000), reduced by the cost of qualifying property placed in service during the year that exceeds $2 million (up from $800,000).

Qualifying Sec. 179 property is expanded to include qualified real property which is qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. However, expensing of these types of property is limited to $250,000 of the total cost of the properties.

Provisions for Small Business

Start-Up Expense Deduction – For 2010 only, the amount of start-up costs that can be deducted by a business is increased to $10,000 (up from $5,000) and the phaseout of the deduction is increased to $60,000 (from $50,000). Therefore, total phaseout of the start-up cost deduction is at $70,000. “Start-up costs” are those relating to the creation of an active business or investigating the creation or acquisition of an active business, but which are not directly related to capital or equipment. The amount over the deduction limit is amortized over 15 years.

Self-Employment Income and Health Insurance Costs – A self-employed person can take an “above the line” deduction for the full amount of health insurance costs paid for him or her and that person’s immediate family. However, in determining the self employment income subject to the self employment tax, the health insurance cost were not deductible. The new law allows a deduction for the health insurance costs in determining the self employment income, but only for the first tax year beginning after December 31, 2009.

Revenue Enhancers

Information Reporting Required on Rental Property Expense Payments – For payments made after December31, 2010, qualified individuals receiving rental income from real property will be required to file information returns with the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses. There are exceptions for those who can show that the reporting requirement creates a hardship and those who receive rental income of no more than a minimal amount (to be determined by the IRS), and a few others.


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