The recently enacted 2010 Small Business Jobs Act has made tax names more generic. It is no longer the vanilla names as used to be in 90s and in the beginning of this millennium. The good thing is that it contains many tax reforms that can affect businesses. The old names like “Tax Equity and Fiscal Responsibility Act of 1992”, “Jobs and Growth Tax Relief Reconciliation Act of 2003”, are no longer to be found.
Highlights of the changes in the recent small business jobs act are as under:
Total Exclusion of Stock Gains:
Previously, on selling “qualified small business stock” (QSBS) businesses could exclude 50 % of their gain. Then it was increased to 75% for stocks acquired between the periods Feb 17, 2009 and Jan 1, 2011. But now for QSBS acquired between periods September 27, 2010 and January 1, 2011 is given total exemption. This new law even relaxes the alternative minimum tax (AMT) on preference items of sale.
Expensing Facilitated under section 179 to small businesses:
The old rules allowed business to expense up-to $250,000 in a year against certain property. The qualifying properties were machinery, equipment and software. But then the expense limit of $250,000 was cut when the investment limit of $800,000 was exceeded. But according to the new 2010 -2011 tax reforms, the $250,000 expense limit has been increased to $500,000 and the investment limit increased to $2 million. The new law also allows real property like restaurant, retail property and leasehold to be included for property that is placed in service. This can be up-to $250,000.
S Corporation Holding Period Reduced
Previously, C corporations getting converted to S corporations had to retain their assets for 10 years or pay a “built-in gain” tax. Under the new law, the period of asset holding is reduced to 5 years and the fifth tax year should precede the corporation’s tax year that beings in 2011.
Cap Raised for Startup Expenditures
According to the new law the cap for startup expenditures has been raised to $10,000 for 2010 from the previous $5,000 write-off. The startup expenditures need to be amortized for five years.
Period Extension for 50% Bonus
For properties used in service for the period 2008 – 2009, businesses were allowed a write-off of 50% in the first year of cost capital expenditures. Under the new law, the first year 50% write-off has been extended up-to 2010. For aircraft and other long production period property, the extension is up-to 2011.
Period to Offset Taxes Extended for General Business Credits
Under the new law, unused business credit can be carried back to offset five years of tax paid. Previous Business credits that were unused could be brought to use to offset taxes paid the previous year only. This applies for partnerships, non-publicly traded corporations and sole partnerships operating in 2010 and whose credit is less than $50 million.
Health Insurance Cost Reduction for the Self Employed
The 2010 self employment tax allows business owners to reduce the expenses of health insurance for themselves and the entire family from taxes.
All General Business Credits to Offset AMT Liability
In tax years starting from 2010, all types of general business credits can be used to offset AMT. Previously it was not so and only few credits such as ‘the credit for small business employee health insurance expenses’ had to be used to offset AMT liability.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to