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Saturday, September 25, 2010

SUMMARY OF KEY PROVISIONS OF SMALL BUSINESS JOBS ACT OF 2010

Congress has now passed the Small Business Jobs Act of 2010. The Act provides some welcome tax relief to business that hopefully will spur growth and job creation. However, Congress was stingy, with most of the tax benefits expiring after 2011. I remember, even though it was many years ago, when if a tax benefit was a good idea, it was enacted permanently because it was a good idea, and would not expire after a few years. These days, tax legislation tends to make increases in penalties and compliance obligations permanent, while tax benefits and reductions are only temporary. If Congress was really serious about these issues, it would make the changes on a permanent basis (or at least as permanent as a law that could be changed at any time in the future can be).

Below is a summary of the key new provisions.

I. Expensing

     A. Increase of §179 annual expensing to $500,000 from $250,000 for 2010 and 2011

          1. Increase threshold for beginning of phase-out to $2,000,000

          2. Will allow expensing of some types of depreciable real property

          3. Reducing back to $25,000 in 2012

     B. Extension of 50% bonus first year depreciation for qualified real property

     C. First year depreciation cap for autos and trucks increased by $8,000 for 2010

     D. Deduction for start-up expenses increased to $10,000 from $5,000 for 2010 and 2011

II. Credits

     A. Eligible small business credits can be carried back 5 years instead of one year, and extension of carryforward periods

III. Gain Exclusions

     A. Gains from the disposition of qualified small business stock can now be 100% excluded (up from 75%) and will not be an AMT tax preference item for stock acquired before 2011

     B. S Corporation built-in gains period reduced to 5 years for 2011

IV. Misc.

     A. 2010 health insurance expenses are deductible in computing self-employment tax

     B. Substantiation requirements for cell phones and similar equipment are elimianted by removing them from being "listed property"

     C. Recipients of rental real estate income are deemed to be in a trade or business for information reporting requirements (and thus must report all expenditures of $600 or more)

     D. Increased penalties for failure to file information returns

V. Retirement Plans

     A. Roth options added to Section 457 plans

     B. Retirement plan distributions may be rolled over to Roth IRA accounts (other than periodic distributions, minimum required distributions, and hardship distributions)

VI. International

     A. Guaranty fees paid by a U.S. person are U.S. source income, as well as fees paid by a foreign person if effectively connected with a U.S. trade or business (overides Container Corp., 134 TC No. 5 (2010))

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