(The following subject matter may require a more comprehensive discussion with your tax advisor than this summary can provide.)

Small Business Jobs Act Brings Tax Benefits

The House passed the Small Business Jobs Act of 2010 (H.R. 5297).

California does not conform to any of the provisions in the Act. For now, here is a list of the provisions included in the Act:

• ¤179 expanded: For tax years beginning in 2010 and 2011, expense limit is increased to $500,000 and phase-out threshold increased to $2 million;
• ¤179 for (some) real estate: For tax years beginning in 2010 and 2011, taxpayers can elect to treat certain real estate as ¤179-eligible. Qualifying real estate includes:
  • Qualified leasehold improvements;
  • Qualified restaurant property; and
  • Qualified retail improvement property.
• Bonus depreciation extended: Available for property purchased through December 31, 2010;
• Luxury auto depreciation increased: As a result of the extension of bonus depreciation, first-year depreciation of automobiles is bumped up $8,000;
• Deduction for start-up expenditures increased: Under IRC ¤195, increased from $5,000 to $10,000 for taxable years beginning in 2010 (only);
• Exclusion for small business stock: For purchases made after the date of enactment and before January 1, 2011, the exclusion for small business stock under IRC ¤1202 is increased to 100%;
• Five-year carryback for general business credits: Effective for credits determined in the taxpayer’s first taxable year beginning after December 31, 2009 (one year only), the carryback period for an “eligible small business” is increased from one to five years. In addition, the credit is not subject to the AMT limitation;
• Built-in gain period shortened to five years: For taxable years beginning in 2011 (only), the recognition period for the BIG tax is shortened to five years;
• Deduction for health insurance for SECA purposes: For 2010 (only), the deduction for self-employed health insurance is also a deduction for purposes of the SE tax;
• Cell phones removed from listed property: Permanent and effective for tax years ending after 2009;
• Information reporting required for rental property: Effective for payments made after December 31, 2010, rental real estate is treated as a trade or business for information reporting purposes. IRS to prescribe de minimis exceptions;
• Higher information return penalties: Penalties under IRC ¤6721 are substantially increased beginning in 2011;
• ¤457 plans can include Roth accounts: For tax years beginning after December 31, 2010; and
• Rollovers from elective deferral plans to in-plan Roth accounts allowed: Effective on the date of enactment. Will allow a two-year deferral (2011 and 2012) for rollovers done in 2010.

— B.L. Pang EA
B.L. can be reached at (650) 593 7522 or emailed at