On September 27, the President signed the Small Business Jobs Act. This now opens the door for a renewal of the 90% SBA guarantee on the 7(a) loan program thru the end of December 2010. The fee relief afforded under Section 501 of the American Recovery and Reinvestment Act of 2009 has been extended through December 31, 2010 by the Small Business Jobs Act of 2010. This means that on all 7(a) loans approved from October 1, 2010 through December 31, 2010 the upfront guaranty fee payable to SBA will be eliminated. All other fees in the 7(a) loan program will be the same as for FY 2010. The same
applies for SBA 504 loans: This means that on all 504 loans approved from October 1, 2010 through December 31, 2010 the Third Party Participation fee and the CDC Processing fee will be eliminated. In addition, there are a number of provisions which the act provides top small business that could be of benefit. In summary, they include:
I. Qualified Small Business Stock (IRC Sec. 1202(a)
A 100% exclusion for both regular tax and AMT is allowed for gain under the above code from the sale of certain small business stock acquired at original issue and held for more than five years. The change is effective for stock acquired after September 27, 2010 and before January 1, 2011, and held for more than five years.
II. Carry back of unused General Business Credit
For the first tax year of the taxpayer beginning in 2010, eligible small businesses can carry back unused general business credits for five years. Eligible small businesses consist of sole proprietorships, partnerships and non-publically traded corporations with $50 million or less in
average annual gross receipts for the prior three years.
III. General Business Credits Offset AMT
For tax years beginning in 2010, eligible small businesses, as defined in the preceding paragraph, are able to use all types of general business credits to offset their AMT.
IV. Built in Gains Five year Suspension period Act.
Where a corporation formed as a C corporation elects to become an S corporation (or where an S corporation received property from a C corporation in a nontaxable carryover basis transfer), the S corporation is taxes at 35% on all gains that were built in at the time of the election if the gains are recognized during the recognition period.The recognition period the
generally is the 10 year period after the S election becomes effective (or the 10 year period after the asset transfer). No tax is imposed on the recognized built in gain of an S corporation during tax year beginning in 2009 or 2010 if the seventh tax year in the recognition period precedes the 2009 or 2010 tax years. Under the new provision, no tax is imposed on the recognized build in gain during the tax year beginning in 2011 of the fifth year in the recognition period precedes the tax year beginning in 2011.
V. Section 179 Deduction
Under the new law, for tax year’s beginning in 2010 and 2011, the maximum Sec 179 deduction has been increased to $500,000. That means, If you buy assets up to $500,000, you can expenses the whole amount and reduce your profit. If you do not have a profit, you will not
be able to expense it.
VI. Section 179 deduction for Certain Leasehold Improvement, Restaurant, and Retail
For property placed in service after Dec. 31, 2009, for any tax year beginning in 2010 or 2011, qualified leasehold improvement property, qualified restaurant property, and qualified retail
improvement property is eligible for $250,000 of expensing under IZRC Sec 179.
VII. Bonus Depreciation:
For year 2010 also taxpayers can deduct 50% cost of the qualified property placed in service in year 2010.
VIII. Startup Expenses:
For a tax year beginning in 2010, the deduction for startup expenses is increased from $5,000 to $10,000 and the phase-out threshold is increased from $50,000 to $60,000. Caution: The increased deduction applies to startup expenses, and does not apply to the deduction for organizational expenditure, which remains at $5000.
IX. Self-employment Tax Deduction for self-employed Health Insurance:
For tax year 2010, the deduction for health insurance cost of a self employed taxpayer is deducted in computing net earnings from self employment tax.
X. Cell Phones:
Cell phones are removed from the definition of listed property for tax year beginning 2010. What that means is, you do not have to keep track of personal use of cell phones.
XI. Reportable Transaction Penalty:
The penalty for failure to disclose a reportable transaction to the IRS is commensurate with tax benefit received from the transaction. Reportable transactions are transactions that the IRS has identified as listed tax shelters or that have characteristics of tax shelters, including large losses or confidentiality agreements. The penalty is 75% of the tax benefit received, with a minimum penalty of $10,000 for corporations and $5,000 for individuals.
XII. Rental Income Information Returns:
For payments made after Dec. 31, 2010, persons receiving rental income from real property must file information returns to the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses.
XIII. Penalties Increase for Failure to File Information Returns:
For the information returns, the penalties have been increased from $100 to $250. Avoid these penalties by filing all the information returns on time.
XIV. Withholding of certain Guarantees of indebtness Paid to Foreign Persons:
Any payment by the U.S. Taxpayer to foreign persons is subject to withholding tax.