Small Business Tax Act Briefing And A Pat On The Back

As anticipated in our August tax briefing, Congress recently passed and Obama signed the Small Business Jobs Act of 2010 which created a $30 billion fund for small banks to use as a source to make loans to small businesses.  It also included important tax incentives, the highlights of which we will discuss below. 

Business Fixed Asset Incentives
Section 179 expensing deduction has been expanded for most fixed assets acquired in 2010 and 2011.  The maximum annual deduction has been increased from $250k to $500k as long as total acquisitions are less than $2 million.  Note that up to $250k of certain real property, including qualified leasehold improvements can be included as Section 179 property eligible for the expensing deduction.   In addition, the 50% first year bonus depreciation has been retroactively extended through the end of 2010.

The maximum write-off for autos in the first year is now $11,060 for 2010.  However, new SUVs with loaded weights over 6,000 pounds still enjoy a maximum Section 179 expensing deduction of $25,000 plus 50% bonus depreciation for the excess plus 20% normal depreciation for the remainder.

Gain Exclusion for Qualified Small Business Stock
For stock acquired in a qualified small business after September 27, 2010 and before January 1, 2011, gain of up to $10 million (or if greater, 10 times the taxpayer’s basis in the stock) on its subsequent sale can be excluded from taxable income if held for at least five years before sale.  Further, unlike prior law, the excluded gain is not taxable for Alternative Minimum Tax (AMT) purposes.  A qualified small business is a C Corporation whose gross assets is $50 million or less at the time the stock is issued and at least 80% of the assets is used in an active trade or business.  To be eligible, the shareholder must generally acquire the stock at its original issue for money, certain property or as compensation for services.  Clearly the window of opportunity on this incentive is extremely short so call us immediately if you have thoughts of starting or investing in a qualified business.

Extension of Tax Credit Carryback Period and AMT Offset
Eligible small businesses can carry back certain general business tax credits generated in their first tax year beginning after 2009 for up to 5 years in order to get refunds of taxes previously paid.  Such credits include the R&D tax credit and the Work Opportunity Tax Credit.  In addition, these credits will be available to offset AMT.  To be eligible, the taxpayer must either be a closely-held corporation, partnership or sole proprietorship, whose average gross receipts don’t exceed $50 million.

Temporary Reduction in S Corp Built-In Gain Period
Under long-standing law, a C corporation that converts to an S corporation generally must hold any appreciated assets for at least 10 years following conversion or pay tax on the built-in appreciation at the highest corporate tax rate.  However, under the Act, the holding period is only 5 years in the case of dispositions in any tax year beginning in 2011. 

Health Insurance Reduces Self-Employment Income Temporarily
For the first tax year beginning after 2009, a self-employed individual can deduct his or her health insurance in calculating self-employment tax.

The Unspoken Word

• Still no word on estate tax changes for 2010 and beyond.  See our August tax briefing at www.wblcpa.com.
• As expected, no agreement yet on whether the so-called Bush tax cuts will be extended in part or whole for 2011.

Georgia Chimes In With Several Tax Credits
This summer, Georgia enacted a new Tax Credit for Angel Investors. The law provides for a credit of up to $50,000 per year for investors in startup companies in Georgia beginning in 2011. The credit is 35% of the amount invested, but it is limited to very small, relatively new businesses in certain designated industries.  An application has to be submitted to the State before the investment is made. 

Also beginning in 2011, a tax credit for the purchase of qualified energy and water efficient equipment is available for 25% of its cost, up to $2,500.  Once the equipment is purchased, an application will have to be submitted to the State.

Contact Us
As always, please contact us for details about these provisions and the specific nuances of each.

And The Pat On The Back?
Williams Benator & Libby is proud to have recently been named one of the 2010 Best Accounting Firms to Work For in the United States by the prominent industry publication Accounting Today and Best Companies Group.  The firm will be honored at an upcoming event this November in Las Vegas.  Factors contributing to the firm selection include: cutting edge technology, recently upgraded Class A office space, top ranked research tools, flexible work schedules, continuing education programs, community reinvestment activities, green initiatives, challenging work, mentorships, evaluation programs, social activities and of course our friendly, fun, honest and nurturing management team.  We would be amiss to not thank our fantastic clients, who make what we do every day possible.  Thank you for helping us reach this pinnacle!