Today the President signed into law the Small Business Jobs Act of 2010 (H.R. 5297). The House Bill came before the Senate for a vote and was passed by the Senate last week by a vote of 61 to 38. As with many legislative works, the $30 billion bill contains some valuable changes in the law, but they don't necessarily jump off the page. Proponents of the bill claim it will enable $300 billion in new small business credit and create 500,000 new jobs.
"Large small businesses" (an oxymoron, for sure) already gained from the 2009 Recovery Act stimulus, and that continues, with expansions to the SBA 7(a) and 504 loan programs. Federal contracting rules have been overhauled, with benefits to well-connected contractors and new entrants.
But many of these federal programs leave the average small business or startup wondering "what's in it for me? The good news is, plenty.
How about a ten grand ($10,000.00) deduction to offset costs of starting a new business?
New businesses started in 2010 can deduct up to $10,000.00 in startup expenses. This is up 2x, doubling the 2009 deduction of $5,000.00. As most founders can attest, the process of starting a business can result in all sorts of unexpected costs and expenses. This grab-bag deduction can seriously help defray startup expenses in the first year. Of course, you need to be on a path to revenue and income, or a tax deduction becomes less useful.
Purchasing equipment for your trade or business? Get a first-year write-off for up to $500,000.00 and a phased incentive up to $2 million.
This applies to IRS Code Section 179 expenses, which were already benefitted by ARRA, the 2009 American Recovery and Reinvestment Act. This includes purchases of machinery and equipment, livestock, presses, office equipment, store counters, cases, and other non-structural build-out items. This also includes non-custom computer software and manufacturing equipment. However, you'll need to act quickly, as some of the limits revert back at the end of 2011.
Hey, your cell phone is now easier to deduct.
While cell phone deductions probably don't top your list of big-ticket expenses, a minor procedural change removes them from a category of expense that was previously somewhat difficult to deduct.
Your health insurance can be deductible.
A self-employed business can deduct a family health plan premium for the 2010 tax year. Whether this will be extended or made permanent isn't entirely clear, but I hope that this provision will continue in future years.
Have a bad year? If you have current losses and prior profitable years, you might be able to get a refund on prior tax payments. Apply your tax credits over five years and against the AMT.
If you have current losses, but paid tax on profitable years anytime in the last five years, you can potentially get an immediate refund of some of those payments. Businesses with gross receipts under $50 million (and that's most small businesses and startups) can carry back their general business credits to offset up to five years of tax liabilities and can apply those credits to the AMT (alternative minimum tax). Prior to the Small Business Jobs Act of 2010, you could only carry back credits for one year.
Issuing stock? Get a 100% capital gains exclusion for up to $10 million.
This one is a bit trickier, as not all small businesses will qualify. Likewise, the issuance of stock must occur in the pretty narrow window between the bill's passage in late September and the end of 2010. That said for those who qualify, the bill increases the capital gains exclusion to 100% on stock issues that meet requirements and fall within the window.
I'm not going to dive too deep into this one, but as with prior stimulus, this bill includes a wide variety of lending changes designed to make capital flow more readily to small businesses. You can read all about it at the White House press release page.
Resources to Learn More
- Senate Summary of the Act (PDF)
- Full Legislative Text and Amendments (PDF)
- Additional Legislative History
And, the obligatory legalese:
The typical disclaimers apply: This post is provided as general information, and is not intended as legal advice. The applicability of this information will vary based upon countless variables unique to your business, and the legality and applicability of this information will vary depending upon your jurisdiction. You should always consult a professional, such as your attorney, accountant, or tax advisor before making decisions. IRS CIRCULAR 230 DISCLOSURE: While this information is not considered legal advice, any tax-related information contained in this communication (including any attachments or links) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.