Opportunities galore for everyone in the Small Business Jobs Act: Significant income tax savings

The Small Business Jobs Act, which the President signed in law on September 27, offers significant income tax savings to businesses. Many larger businesses, however, may have ignored its provisions, thinking that the title excluded them from the major components of the bill. Fortunately, this isn't the case; despite the misleading moniker, the Small Business Jobs Act contains a variety of cross-industrial opportunities that developers, owners, and property managers can take advantage of right away. Equipment/Leasehold Expense Deduction: A major component of the Bush tax cuts has been extended and expanded: In order to help businesses quickly recover the cost of certain capital expenses, businesses can elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Under pre-2010 Small Business Jobs Act law, taxpayers could expense up to $250,000 of qualifying property - generally, machinery, equipment and certain software—placed in service in tax years beginning in 2010. This annual expensing limit was reduced (but not below zero) by the amount by which the cost of qualifying property placed in service in tax years beginning in 2010 exceeded $800,000 (the investment ceiling). Under the new law, for tax years beginning in 2010 and 2011, the $250,000 limit is increased to $500,000 and the investment ceiling to $2 million. The new law also makes certain real property eligible for expensing. For property placed in service in any tax year beginning in 2010 or 2011, the up-to-$500,000 of property expensed can include up to $250,000 of qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property). Extension Of 50% Bonus First-Year Depreciation: An incredibly powerful incentive, the 50% bonus depreciation provision allows businesses to write-off 50% of the cost of capital expenditures for most new tangible personal property placed in service in 2010. As an example of the benefits of Bonus Depreciation and Section 179 Deductions, consider the following: If a business purchases $1 million worth of 5-year equipment, then the maximum deduction for 2010 is $800,000, or a formidable 80% of the cost of the equipment. If the purchase is in 2011, the deduction will be $600, 000, and in 2012, it will be $300,000. Provided you have access to the necessary capital, it is clearly in your best interest to invest in equipment sooner, rather than later. General Business Credits and the Alternative Minimum Tax: Under new law, businesses can use all general business credits to offset the alternative minimum tax (AMT) for years beginning 2010. This is a change from previous regulations, which provided for only certain allowable general business credits to be claimed against regular tax liability, and only to the extent that regular liability exceeded AMT liability. Rental Property Expense Payments: The Act requires persons receiving rental income from real property to provide information returns to the IRS and service providers reporting payments of $600 or more during the tax year for rental property expenses. This excludes persons renting on a temporary basis and taxpayers with rental income below a minimum threshold set by the IRS. Start-Up Expenditures: Previous law allowed for start-up expenditures to expense up to $5,000. This deduction was reduced by the amount over which that expenditure exceeded $50,000. The Small Business Jobs Act increases that deduction up to $10,000 and pushes the line at which that deduction starts to phase out after $60,000, thereby providing a significantly larger tax incentive to start-ups. These tax incentives can be incredibly useful for all businesses in securing capital, depreciating assets, and offsetting tax burdens. Furthermore, many of these provisions are retroactive to the beginning of the year, so make sure you incorporate them into your year end tax planning. Barry Sunshine, CPA, MST, is a tax partner at Grassi & Co., CPAs, Jericho, N.Y.