Small Business Jobs Act of 2010 Signed by President Obama
On September 27, 2010, the President signed the Small Business Jobs Act of 2010 (the Act), a $12 billion package of temporary tax provisions and more than $30 billion in lending incentives which contains many provisions designed to spur job creation. Despite the Act’s focus on small businesses, it also includes provisions that help larger businesses, such as a retroactive extension of bonus depreciation, and individuals, including retirement savings incentives. The Act also increases the section 179 expensing limits and expands the definition of qualified property, provides a five-year general business credit carryback period for small businesses and treats the AMT tentative minimum tax as zero for eligible small business credits, provides a 100 percent gain exclusion for the sale of qualified small business stock, and relaxes built-in gain rules for the conversion to a S corporation. Also included are a number of miscellaneous provisions that remove cell phones from listed property, enhance the deduction for start-up expenses, provide retroactive penalty relief relating to reportable transactions, and allow a self-employment FICA tax deduction for 2010 health insurance costs. The tax and lending provisions in the Act are offset by various revenue raising provisions. The largest offset allows participants in 401(k) plans to roll over their existing balances to a Roth IRA and pay current taxes. Other revenue provisions include increased failure-to-file penalties, new information reporting for rental property expenses, changes to U.S. sourcing rules on guarantee fees, and accelerated estimated corporate tax payments.
While this Act does not provide the permanent tax incentives that many people (including the President) sought, it does provide many important tax and nontax incentives that will help businesses of various sizes. Most importantly, it provides significant incentives to purchase property in 2010 and 2011, allowing both significant expensing and enhanced depreciation. Businesses that are considering replacing equipment in the near future should seriously considering doing so as soon as possible as the window for placing property in service and receive preferential treatment is very narrow. The Act also helps small businesses in a number of ways, the most important of which is the establishment of a $30 billion lending fund, which should help east frozen credit markets. By increasing the exclusion on gain for small business stock, the Act allows small business to either enter into reorganization or raise capital through the sale of equity in a tax advantaged way. Investors should consider the additional returns to entering into such transactions provided by these provisions. Additionally, extending the carryback of the general business credit and treating the tentative minimum tax under the alternative minimum tax as being zero for eligible small business credits should make the various credits that make up the general business credit more valuable. It is now even more important for small businesses to make sure that they are taking advantages of all the credits that are available by properly documenting activities that qualify for these various credits. Given the lack of readily available revenue provisions available to lawmakers, this may be the last tax bill that passes the Congress before the November elections.
Read details about this Act in the extended article, Small Business Jobs Act of 2010 - Changes and Likely Impacts of the Legislation
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