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William Perez

Small Business Jobs Act of 2010: Small Business Tax Changes

By September 27, 2010

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The Small Business Jobs Act of 2010 (HR 5297) expands lending to small businesses, creates a pilot program for small businesses seeking federal contracts and creates a pilot program to encourage small business export activities; all of which will be administred through the Small Business Administration. The Small Business Jobs Act also provides a number of tax breaks and revenue raisers that impact business owners, the self-employed, retirement investors, and landlords.

Small Business Lending Intiatives

"The centerpiece of the bill is the creation of a $30 billion lending facility that would direct taxpayer money to regional banks on the condition they lend it out to small businesses. Unlike the emergency financial rescue package implemented at the height of the crisis in 2008, banks would have to volunteer to participate in this program," reports the Wall Street Journal.

The Journal of Accountancy summarizes this and other SBA programs in their article: Small Business Stimulus Passes Congress.

Business-Related Tax Breaks

The Small Business Jobs Act expands bonus depreciation for one year. This tax deduction enables a business to expense fifty percent of the cost of new equipment, such as computers or software, in the year of purchase. The remaining cost is spread out, or depreciated, over the normal life of the equipment. "The 50% Bonus Depreciation provision was supposed to end December 31, 2009.  The new law will continue that extra depreciation through business purchases in 2010. This is a 50% bonus for new property purchased and put in place this year," writes About.com's Business Law and Tax Guide Jean Murray.

The section 179 deduction will have a maximum deduction amount of $500,000 for the years 2010 and 2011 under the Small Business Jobs Act. The maximum section 179 deduction was scheduled to be $250,000 for 2010 and $25,000 for 2011. "Of course, you can only take the deduction if you spend the money to buy the property," cautions my colleague Jean Murray.

Business owners will no longer have to keep track of individual calls on their cell phone plans. The Small Business Jobs Act removes the listed property classification from cell phones and mobile telephone service. Prior law required that a business had to substantiate the business use of a cell phone device and plan minutes, which meant a full accounting of the business purpose of each and every minute and prorating the cost of the device and mobile service accordingly. "The provision enables the fair market value of personal use of a cell phone or other similar device provided to an employee predominantly for business purposes to be excluded from gross income," writes CCH in their Tax Briefing.

Entrepreneurs have long depended on the start-up expense deduction, whereby the first $5,000 of expenses incurred before a business actually begins can be deducted in full once the business opens its doors for business. The Small Business Act expands this deduction to $10,000 for the year 2010 only.

Self-employed people can now deduct the cost of their own health insurance as a business expense that will reduce their self-employment tax. This tax reducing provising is valid only for the year 2010. For 2009 and presumably for 2011, the deduction for health insurance is an above-the-line adjustment that reduces the regular income tax but does not reduce the self-employment tax.

Jean Murray has additional coverage of small business provisions in the Small Business Jobs Act.

The Small Business Jobs Act of 2010 also makes important changes for 401(k), 403(b) and 457(b) retirement plans, and in the requirements for issuing 1099-MISC forms.

President Obama signed HR 5297 into law on September 27, 2010. The House of Representatives voted in favor of the bill on September 23, 2010, by a vote of 237 in favor to 187 against. The Senate voted on September 16, 2010 with 61 in favor and 38 against. (Washington Post Votes Database for HR 5297.) This law is expected to raise an additional $2.419 billion over the next ten years, according to a report issued by the Joint Committee on Taxation, but front-loads an estimated $55.191 billion in various tax cuts in the first year.

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