Highlights of Small Business Jobs Act of 2010

9/30/2010

By Charles J. Garrison, CPA

The House of Representatives passed the Senate version of the Small Business Jobs Act of 2010 on September 23, 2010, which President Obama signed into law on Monday. Here are some of the bill’s highlights according to a US Senate Finance Committee summary:

• 100% Exclusion of Small Business Capital Gains. Generally, non-corporate taxpayers may exclude 50 percent of the gain from the sale of certain small business stock acquired at original issue and held for more than five years. This bill temporarily increases the amount of the exclusion to 100 percent of the gain from the sale of qualifying small business stock that is acquired after the date of enactment in 2010 and held for more than five years.
• General Business Credit Carried Back Five Years. Extends the one-year carryback for general business credits to five years for certain small businesses. This applies to general business credits for those sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.
• General Business Credit Not Subject to AMT. Allows certain small businesses to use all types of general business credits against their AMT. This applies to general business credits for those sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.
• S Corp Holding Period on Built in Gain Assets. Temporarily shortens the holding period of assets subject to the built-in gains tax to 5 years if the 5th taxable year in the holding period precedes the taxable year beginning in 2011.
• Increase Small Business Administration (SBA) Loan Limits. This provision increases 7(a) loan limits from $2 million to $5 million, 504 loans from $1.5 million to $5.5 million, and microloans from $35,000 to $50,000. It also increases the government guarantee on 7(a) loan limits, while providing the elimination of borrower fees on 7(a) and 504 loans through December 31, 2010. It increases the 7(a) Express Loans from $300,000 to $1 million to increase working capital to small businesses. The package also includes Intermediary Lending Pilot program, which allows the SBA to make direct loans to eligible nonprofit lending intermediaries, in turn allowing them to make loans to new or growing small businesses.
• Extend Elimination of Small Business Administration (SBA) Loan Fees. This provision extends the American Recovery and Reinvestment Act small business lending program that eliminates the fees normally charged for loans through the SBA 7(a) and 504 loan programs and increases the government guarantees on 7(a) loans from 75% to 90%.
• State Small Business Credit Initiative (SSBCI). Provides $1.5 billion in grants to states to support small business lending programs.
• Small Business Lending Fund. Authorizes the creation of the Small Business Lending Fund to provide Treasury with the ability to purchase preferred stock and other debt instruments from eligible financial institutions with less than $10 billion in total assets. Eligible institutions include insured depositories, bank and savings and loan holding companies, and certain community development loan funds. Eligible institutions with less than $1 billion in total assets can apply to receive investments of up to five percent of their risk-weighted assets. Eligible institutions between $1 billion and $10 billion in total assets can receive investments of up to three percent of risk-weighted assets. Participating institutions will pay a five-percent dividend rate on the preferred stock, but this rate can be reduced to as low as one percent if a bank demonstrates a 10-percent increase in small business lending relative to a baseline set using the four quarters prior to enactment. The dividend rate is increased to seven percent after two years, if the bank does not increase its small business lending. To encourage timely repayment, the rate increases to nine percent after four and a half years.
• Increase of Section 179 Expensing and Expansion to Certain Real Property. Increases the allowable expense to $500,000 for the taxable years beginning in 2010 and 2011. Within that threshold, this bill would allow taxpayers to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.
• Extension of Bonus Depreciation. Extends the additional, first-year 50-percent depreciation for qualifying property purchased and placed in service in 2010.
• Increased Deduction for Start-up Expenditures. Increases the amount of start-up expenditures that may be deducted to $10,000 subject to a $60,000 phase-out threshold.
• Deductibility of Health Insurance for the Purposes of Calculating Self-Employment Tax. This provision would allow business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in the calculation of their 2010 self-employment tax.
• Revenue Raisers
• Require Information Reporting for Rental Property Expense Payments. Requires persons receiving rental income from real property to file information returns to the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses. In general, there is an exception for individuals renting their principal residences, including active members of the military, from the reporting requirements.
• Increase Penalties for Failure to File Information Returns. Increases penalties for failure to timely file information returns to the IRS. The first-tier penalty is increased from $15 to $30, and the calendar year maximum is increased from $75,000 to $250,000. The second-tier penalty is increased from $30 to $60, and the calendar year maximum is increased from $150,000 to $500,000. The third-tier penalty is increased from $50 to $100, and the calendar year maximum is increased from $250,000 to $1.5 million. For small filers, the calendar year maximum is increased from $25,000 to $75,000 for the first-tier penalty, from $50,000 to $200,000 for the second-tier penalty, and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard is increased from $100 to $250.
• Allow Rollovers from Elective Deferral Plans to Roth Designated Accounts. Allows 401(k), 403(b), and governmental 457(b) plans to permit participants to roll their pre-tax account balances into a Roth account. The amount of the rollover would be includible in taxable income except to the extent it is the return of after-tax contributions. If the rollover is made in 2010, the participant can elect to pay the tax in 2011 and 2012. Plans would be able to allow these rollovers immediately upon enactment.