Small Business Jobs Act - The Tax Breaks

On September. 27, 2010, the Small Business Jobs Act was passed. The new bill extends the SBA loan provisions, tax cuts, and other opportunities in government contracting, exporting, and counseling for small business owners. You can learn about all of the new legislation at http://www.sba.gov/jobsact/.  For the purpose of this article we will focus on the tax breaks for small businesses, since they will affect the most businesses.

The eight tax breaks for small businesses contained in the Small Business Jobs Act are as follows:


1. The expensing limit has been expanded to $500,000 for the years 2010 and 2011. This is a large increase over the $250,000 that would have been eligible for expensing under Section 179 for 2010, and only $25,000 for 2011.

2. There is a carryback of general business credits increase from 1 year to 5 years. This allows most small businesses to offset as many as five years of taxes as well as the Alternative Minimum Tax.

3. The accelerated/bonus depreciation in the Recovery Act has been extended through 2010. Bonus depreciation (the additional depreciation is 50% of the basis of the property placed in service) would have expired after December 31, 2009 if it were not for its extension for 2010 in this bill.

4. There will be zero capital gains taxes for those who invest in small businesses before December 31, 2010, and hold for at least five years.

5. There is a temporary increase in deductions for start-up. Entrepreneurs can deduct $10,000 from their taxes for this year. The limit was previously $5,000. These expenses to open up a new business, incurred while you are setting up or researching the business, may include the cost of advertising, travel, market research or training employees prior to opening the business.

6. The act removes cell phone and similar telecommunications equipment from “listed property” classification, thereby relieving it from the listed property rules, and relaxing the rules on their deductibility. This basically means it will be easier to deduct the use of cell phones.

7. There are deductions for health insurance costs for the self-employed for 2010. All self-employed business owners, members of limited liability companies, 2% S-Corporation shareholders who are employees can deduct health insurance costs for themselves and their families on their tax returns. This means that business owners will be allowed the deduction of health insurance premiums on the business tax returns and schedules of the pass-through entities, rather than as adjustments to gross income on Form 1040.

8. There will be limitations on penalties for errors in tax reporting that disproportionately affect small business. Penalties for errors in tax reporting have been based on a fixed dollar amount and will now be on a percentage basis of the error itself.



Almost all of these new tax breaks are for this year only, so make sure to consult your accountant right away. And by the way, this article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice. Again, for further information, please consult appropriate professional tax advice from your accountant. We have several in Sumner and surrounding counties.