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Small Business Jobs Act of 2010 Tax Provisions

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The Small Business Jobs Act of 2010 was enacted on September 27, 2010. The SBJA contains some tax provisions that take effect this year. Other tax provisions will be implemented during the next several years.

Several of the provisions are designed to encourage investment and provide access to capital for businesses. The following is a list of those specific tax provisions now in effect; additional information will be added to this page as it becomes available.

Please note that in late December of 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ("Tax Relief Act of 2010"), which either changed or extended the following provisions of the Small Business Jobs Act: 2011, 2021 & 2022. The information below for the SBJA provisions has been updated to reflect changes from the Tax Relief Act of 2010.

Sect. 2011: Temporary exclusion of 100% of gain on certain small business stock

Expanding on the provisions of Internal Revenue Code Section 1202 and the American Recovery and Reinvestment Act, the Small Business Jobs Act provides an additional incentive for investment in qualified small businesses. Under this Act, investors in qualified small business stock can exclude up to 100% of the capital gain upon sale of the stock.

Under the SBJA, in order to claim the capital gain exclusion, the qualified small business stock must be:

  1. Acquired after September 27, 2010, and before Jan 1, 2011, and
  2. Held for at least five years before the stock is sold.

However, Section 760, Temporary Exclusion of 100% of Gain on Certain Small Business Stock, of the Tax Relief Act of 2010, extended the exclusion for qualified small business stock acquired before January 1, 2012.

Under current law, the earliest tax year for which this 100% capital gain exclusion can be claimed is 2015. Additional limitations, qualifications and requirements may apply. Capital Gains and Losses has information on reporting capital gains.

Sect. 2012: General business credits of eligible small businesses for 2010 carried back 5 years

The new law allows an eligible small business to carry back general business credits five years. Previously, the credits could only be carried back one year. The carryback is for credits determined in the first taxable year beginning after December 31, 2009.

An “eligible small business” in general is defined as follows:

  1. A corporation whose stock is not publicly traded, a partnership, or a sole proprietorship, and
  2. The taxpayer must have $50,000,000 or less in average annual gross receipts over the three preceding tax years.

This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009). The five-year carryback period is available only for credits earned in the tax year 2010.

Sect. 2013: General business credits of eligible small businesses in 2010 not subject to alternative minimum tax

The new law allows general business credits to offset both regular income tax and alternative minimum tax of eligible small businesses as described in Section 2012 of the Small Business Jobs Act (see above). The provision is effective for any general business credits determined in the first taxable year beginning after December 31, 2009, and to any carryback of such credits.

This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009).

For more information see business tax credits and the forms used to figure for each credit.

Sect. 2014: Temporary reduction in S-Corporation built-in gain recognition period

Under the Small Business Jobs Act, if the fifth year of an S Corporation’s recognition period ends before their 2011 taxable year begins, then no entity-level tax is imposed on the net recognized built-in gain for the 2011 tax year. Built-in Gains are reported on Form 1120S Schedule D, Capital Gains and Losses and Built-in Gains. The 2011 Instructions for Schedule D, Form 1120S, will be revised and made available on the IRS Forms and Publications page.

Sect. 2021: Increased expensing limitations for 2010 and 2011; certain real property treated as Code section 179 property.

An expense deduction is allowed for businesses which choose to treat the cost of certain qualified property, called section 179 property, as an expense rather than a capital expenditure. For qualifying property placed in service during the taxable years 2010 and 2011, the new law increases both the maximum amount of the deductible expense under IRC Section 179, as well as the statutory phase-out amount. The provision also expands the definition of IRC Section 179 property to include the following types of real property: qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.

Section 402, Temporary Extension of Increased Small Business Expensing, of the Tax Relief Act of 2010, further amended IRC Section 179 for tax years 2012 and 2013. If this election is chosen, it is made in Part 1 on Form 4562, Depreciation and Amortization (PDF), which must be attached to the taxpayer’s original tax return. The instructions (PDF) for Form 4562 contain information on how to complete Part I, Election To Expense Certain Property Under Section 179. Further guidance on Section 2021 is available in Rev. Proc. 2010-47.

Sect. 2022: Additional first-year depreciation for 50% of the basis of certain qualified property

Generally, businesses are allowed to recover the cost of capital expenditures over time through depreciation expense. IRC Section 168(k) allows for additional first-year depreciation, for 50% of the basis, of certain qualified property placed in service after December 31, 2009. The new law extends the additional first-year depreciation deduction to qualified property acquired and placed in service during 2010.

Section 401, Extension of Bonus Depreciation, of the Tax Relief Act of 2010, expands the additional first-year depreciation deduction (bonus depreciation) to equal 100 percent of the cost of qualified property placed in service after September 8, 2010, and before January 1, 2012. It also provides for a 50 percent first-year bonus depreciation deduction for qualified property placed in service after December 31, 2011 and before January 1, 2013.

A taxpayer must use Form 4562 (PDF), to report depreciation on a tax return. The Instructions for Form 4562 contain information on how to fill out, and when to file the Form 4562. The Form 4562 and instructions (PDF) will be updated in the near future for returns filed in tax year 2010.

More information on depreciation can be found on the following links:

Sect. 2031: Increase in amount allowed as deduction for start-up expenditures in 2010

For taxpayers starting an active trade or business, the new law increases the amount the taxpayer is allowed to elect as a deduction for start-up expenditures under section 195(b) for taxable years beginning after December 31, 2009. Section 2031 allows up to $10,000 as a deduction for start-up expenditures, but requires a dollar-for-dollar reduction of the $10,000 deduction if startup expenditures exceed $60,000. This expense should be claimed as an “Other Deduction” on business returns, such as the Form 1120, 1120S or 1065, or as an "Other Expense" on the Schedules C or F of the Form 1040. The remainder of any start-up expenditures, not deducted under section 195(b), can be amortized ratably over 180 months on Form 4562, Depreciation and Amortization.

Sect. 2042: Deduction for health insurance costs in computing self-employment taxes in 2010

Generally, small business owners may not deduct the cost of health insurance when calculating self-employment tax. Under the Small Business Jobs Act, and subject to specific statutory restrictions (i.e. deduction is not available if self-employed individual is eligible to participate in an employer-subsidized health plan maintained by the employer of the taxpayer or the employer of the taxpayer's spouse), business owners can deduct the cost of health insurance for themselves and their family in the calculation of their 2010 self-employment tax.

The 2010 Form 1040 Schedule SE (PDF) and its instructions (PDF) contain directions on how to calculate the credit.

Sect. 2043: Removal of cellular telephones and similar communication equipment from the definition of listed property

Previously, cell phones and other telecommunication equipment were subject to the reporting requirement rules for listed property. Section 2043 removes these items from the definition of listed property.

Under Section 2043, the heightened substantiation requirements and special depreciation rules that apply to listed property will not apply to cellular telephones and similar communication equipment for taxable years beginning after December 31, 2009.

The IRS has subsequently issued guidance in which it will now treat employer-provided cell phones, if used primarily for non-compensatory business purposes, as a working condition fringe benefit, the value of which is excludable from the employee's income. In addition, any personal use of the employer-provided cell phone, if issued primarily for non-compensatory reasons, will also be excludable from the employee's gross income as a de minimis fringe benefit. The IRS will no longer require recordkeeping of business use of an employer-provided cell phone in order to receive this tax-free treatment as long as the phone is issued and used primarily for business reasons.

The IRS will also take a similar administrative approach that applies with respect to arrangements common to small businesses that provide cash allowances and reimbursements for work-related use of personally-owned cell phones. Under this approach, employers that require employees, primarily for non-compensatory business reasons, to use their personal cell phones for business purposes may treat reimbursements of the employees' expenses for reasonable cell phone coverage as nontaxable. This treatment does not apply to reimbursements of unusual or excessive expenses or to reimbursements made as a substitute for a portion of the employee's regular wages.

More information on this topic can be found on the following links:

  • Notice 2011-72 (PDF) provides guidance on the treatment of employer- provided cell phones as an excludible fringe benefit
  • IR-2011-93, IRS Issues Guidance on Tax Treatment of Cell Phones; Provides Small Business Recordkeeping Relief
  • Interim Guidance SBSE-04-0911-083 (PDF) 
Page Last Reviewed or Updated: 21-Dec-2012