By Gina Mascio, LexJet Chief Financial Officer
The Small Business Jobs Act, which was signed into law on Sept. 27, includes several provisions designed to provide tax incentives and relief to businesses. There are several other provisions in the law designed to encourage lending to small businesses.
Some of the key tax-saving provisions of the law include an increase in the Section 179 deduction, an extension of bonus depreciation and an increase in the period during which business credits can be carried back from one year to five years.
Code Section 179 Expensing: The new law increases the maximum amount that may be expensed under Code Section 179 to $500,000 and raises the phase-out threshold to $2 million. This means that business owners who purchase capital equipment for use in their business may be able to deduct the total cost of the equipment in a single tax year rather than depreciating it over a number of years. The enhanced provisions apply to tax years beginning in 2010 and 2011.
For instance, assuming a 34% tax rate, if you were to purchase a $30,000 printer, the tax savings on the Section 179 deduction would be $10,200. The cost of the equipment, net of tax savings is $19,800.
The new law also allows taxpayers to expense qualified leasehold investment property, qualified restaurant property and qualified retail improvement property. The maximum amount with respect to real property that may be expensed, however, is limited to $250,000 of the $500,000 overall limit.
This is a significant increase to the amounts that were previously available to expense. Prior to the enactment of the Small Business Jobs Act, the limit was $250,000 for 2010 and $25,000 for 2011 and real property improvements did not qualify for Section 179.
Bonus Depreciation: This provision allows for an additional first-year depreciation deduction equal to 50 percent of the adjusted basis of the qualified property. Bonus depreciation had expired on December 31, 2009, but the Small Business Jobs Act extended this deduction to purchases made before December 31, 2010. Qualifying property purchased in 2010 (including property purchased prior to the signing date) will be eligible for bonus depreciation.
General Business Credit: The new law extends the carry back period for eligible small business credits from one to five years. If the credit is an eligible small business credit and the business is an eligible small business, the credits generated in 2010 can be carried back five years and carried forward 20 years. The credits can also offset AMT tax. Prior to the new law, the carry back period was one year and the credits were limited in their ability to offset AMT tax.
Most general business credits are considered to be eligible small business credits. An eligible small business is defined as a non-publicly traded entity that has less than $50 million in gross receipts in each of the three years preceding 2010.
You should consult your tax advisor to determine which of these tax planning tips can provide the best benefit for you and your business. To see all of the provisions and how they may apply to your business, click here…