Small Business Expensing (Section 179)
Under Section 179 of the Tax Code, small business taxpayers can
elect to write off an established amount of certain capital
expenditures (mostly machinery, equipment and software) in the year
they are made instead of recognizing the expense through
depreciation over several years.
The previous limit of qualifying property eligible for write-off
was $250,000 and the annual limit was reduced by the amount by
which the cost of property placed in service exceeded $800,000
during the tax year.
Under the Small Business Jobs Act, for tax years beginning in
2010 and 2011, the $250,000 limit is increased to $500,000 and the
investment limit to $2,000,000. The Act also allows certain real
property expenditures (qualified leasehold improvement property,
qualified restaurant property and qualified retail improvement
property) up to $250,000 to be eligible for inclusion in the overall
Bonus First-Year Depreciation
For the past two years, businesses have been allowed to
more rapidly deduct capital expenditures of most new tangible
personal property placed in service by writing off 50% of the cost
in the year of acquisition. The Act extends the first-year 50%
write-off through 2010 and also extends it through 2011 for certain
aircraft and long production period property.
In order to boost small-business startups, taxpayers will be
allowed to deduct up to $10,000 in trade or business start-up
expenditures for 2010. The amount that a business can deduct is
reduced by the amount by which startup expenditures exceed $60,000.
Previously, the limit of these deductions was capped at $5,000,
subject to a $50,000 phase-out threshold.
Small Business Stock
Individuals can currently exclude 75% of their gain on the sale
of qualified small business stock (QSBS) held for at least five
years (the exclusion is 60% for certain empowerment zone businesses)
so long as the stock was acquired after February 17, 2009 and before
January 11, 2011.
The amount of the exclusion has now been increased to 100%
of the gain from the sale of qualifying small business stock that is
acquired between September 27, 2010 and December 31, 2010 and held
for more than five years. In addition, the Small Business Jobs Act
eliminates the alternative minimum tax (AMT) preference item
attributable to such sales.
General Business Tax
Prior to 2010, a business's unused general business credits could
be carried back to offset taxes paid in the previous year, and the
remaining amount could be carried forward for 20 years to offset
future tax liabilities. For the first tax year beginning in 2010,
eligible small businesses can now carry back unused general business
credits for five years instead of just one.
Eligible small businesses include sole proprietorships,
partnerships and non-publicly traded corporations with $50 million
or less in average annual gross receipts for the prior three years.
In addition, the general business credits of eligible small
businesses will not be subject to AMT for 2010. Businesses can
typically claim allowable general business credits for AMT purposes
only against their regular tax liability and only to the extent that
their regular tax liability exceeds their AMT liability.
A few credits, such as the credit for small business employee
health insurance expenses, could be used to offset AMT liability but
for tax years beginning in 2010, eligible small businesses will be
allowed to use all types of general business credits to offset their
C Corporation to S Corporation Conversion
Traditionally, C corporations which convert to an S corporation
have been required to hold onto any appreciated assets for 10 years
or be faced with a built-in gain tax at the highest corporate rate
of 35%. This holding period has been shortened temporarily to
5 years if the 5th tax year in the holding period precedes the tax
year beginning in 2011.
Accounting For Long Term Contracts
our construction and manufacturing clients who use the percentage of
completion method of accounting, bonus depreciation in 2010 will not
be taken into account as a cost. This prevents the bonus
depreciation from having the effect of accelerating income.
Business owners will be allowed to deduct the full cost of health
insurance incurred in 2010 for themselves and their family members
in calculating their 2010 self-employment tax.
Cell phones can now be deducted or depreciated like standard
business property and will no longer be considered "listed" property
which requires burdensome recordkeeping rules.