United States: Small Business Jobs Act Contains Breaks for Businesses and Individuals

On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010 (the "Act"), aimed at helping small businesses to access credit and capital and create jobs. It contains a number of key tax provisions, including expanded Section 179 expensing in 2010 and 2011, revived bonus depreciation for 2010, five-year carryback of unused general business credits, the allowance of rollovers from elective deferral plans to Roth accounts, and more. While most provisions are aimed at small businesses, some are also likely to impact large businesses and individuals.

We have provided a chart comparing the old law versus the new provisions enacted by the passage of the Act. An in-depth discussion of the new provisions is provided below.

Provisions Impacting Small Businesses

Eligible small businesses consist of sole proprietorships, partnerships and non-publicly traded corporations with average annual gross receipts of $50 million or less for the preceding three years.

Increased Section 179 Expensing

Under prior law, the total property that could be expensed for 2010 was $250,000 and the phase-out threshold was $800,000. The Act increases the maximum expensing amount to $500,000, and the beginning of the phase-out amount to $2,000,000 for 2010 and 2011. In these years, for each dollar of investment in Section 179 property in excess of $2,000,000, the $500,000 maximum deduction is reduced by one dollar. No Section 179 deduction would be available for property exceeding $2,500,000. Section 179 deductions remain limited to the taxpayer's total taxable income derived from all active businesses during the year. Excess Section 179 deductions not allowed under the taxable income limitation are carried forward indefinitely.

Section 179 Expensing Now Includes Real Property

The Act also expanded Section 179 to make certain real property eligible for expensing. For property placed in service in 2010 or 2011, the $500,000 amount can include up to $250,000 of qualified leasehold improvement, restaurant and retail-improvement property. Special limitation rules apply to excess Section 179 deductions for qualified real property. Excess deductions that cannot be deducted under the taxable income limitation can only be carried over to a tax year that begins in 2011. To the extent excess deductions cannot be deducted in a tax year that begins in 2011, no Section 179 deduction is allowed.

Increased Deduction for Start-up Expenses

The amount of start-up expenditures businesses may deduct has been temporarily increased from $5,000 to $10,000 for tax years beginning after December 31, 2009, and before January 1, 2011. The phase-out threshold is also temporarily increased from $50,000 to $60,000. The amount a business can deduct is reduced by the amount of expenditures exceeding $60,000. Start-up expenses are costs connected with creating or investigating the creation or purchase of a trade or business. Start-up expenses of a trade or business are not deductible, unless the taxpayer elects to do so.

General Business Credits Carried Back Five Years

Sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the preceding three years can now carry back unused general business credits for up to five years. Previously, excess credits could be carried back for only one year. This provision went into effect upon enactment of the Act and applies to tax years beginning in 2010.

General Business Credits Not Subject to AMT

Under previous law, only certain credits could be used to offset Alternative Minimum Tax (AMT) liability. For tax years beginning in 2010, sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the preceding three years may use all types of general business credits against AMT. Unused credits can be carried back for up to five years.

Removal of Cell Phones from Listed Property

Cellular phones and comparable communications equipment are removed from the definition of listed property, beginning in 2010. This provision allows them to be deducted or depreciated like other business assets, without the heightened substantiation requirements applicable to listed property.

Reduced S Corporation Holding Period for Built-in Gains Tax

Generally, when a C corporation elects to become an S corporation, it must hold onto any appreciated assets for 10 years following the conversion or face a 35-percent tax on all gains that were built-in at the time of the election. For tax years starting in 2011, this provision reduces the holding period from 10 to five years. For tax years beginning in 2009 and 2010, no tax is imposed on the net unrecognized built-in gains of an S corporation if the seventh tax year in the recognition period preceded the 2009 and 2010 tax years.

First-Year Dollar Cap for Autos Boosted by $8,000

Under Internal Revenue Code Sec. 280F, depreciation deductions for automobiles are subject to dollar limits that are annually adjusted for inflation. Previously, the adjusted first-year limit for automobiles placed in service in 2010 was $3,060 for passenger autos and $3,160 for light trucks and vans. The Act increases first-year deduction limits by $8,000 to $11,060 for passenger autos and $11,160 for light trucks and vans placed in service in 2010.

Bonus First-Year Depreciation Extended Through 2010

The Act extends bonus depreciation enacted under the American Recovery and Reinvestment Act, allowing businesses to immediately write off 50 percent of the cost of qualifying property placed in service in 2010. Bonus depreciation applies to all businesses, large or small.

Provisions Affecting Individuals

Ability to Deduct Health Insurance When Calculating Self-Employment Tax

Previously, self-employed taxpayers could not deduct the cost of health insurance for purposes of calculating the self-employment tax. Now the Act provides that self-employed taxpayers can now deduct the cost of health insurance incurred in 2010 for themselves and their families (children under age 27 only) when computing self-employment taxes.

Requirement to Report Rental-Property Expense Payments

This revenue raiser requires persons receiving rental income from real property to file Form 1099 information returns for payments of $600 or more made after December 31, 2010, for rental-property expenses (such as yard care, repairs, accounting, etc.). A copy of Form 1099 must also be provided to each payee. Certain exceptions are available for individuals renting their principal residence, as well as active members of the military. Also, starting in 2011, the IRS can assess harsher penalties for failing to file Form 1099 with the IRS and for failing to send a copy to payees.

Participants in Governmental 457 Plans Can Treat Elective Deferrals as Roth Contributions

Beginning in 2011, state- and local-government-sponsored 457(b) retirement plans will include Roth accounts. The Roth option was previously only available to 401(k) and 403(b) participants. Contributions to Roth accounts are made on an after-tax basis and are not deducted from income. However, distributions of both principal and income are generally tax-free, unless the taxpayer is not 59 1/2 years of age and certain other requirements are not met.

Rollovers from Elective Deferral Plans to Roth IRA Accounts

Participants of 401(k), 403(b) and governmental 457(b) plans may now roll their pre-tax accounts into a Roth account for distributions made after September 27, 2010. The rollover is taxable in the year of rollover; however, future distributions of both principal and income will generally be tax-free, unless the taxpayer has not attained age 59 1/2 and certain other conditions are not met. If the rollover is made in 2010, the participant can elect to report 50 percent of the rollover as income in 2011 and 50 percent in 2012.

100-Percent Exclusion of Small Business Capital Gains

This provision excludes 100 percent of the gain from the sale of qualifying small-business stock acquired after September 27, 2010, and before January 1, 2011, and held for more than five years. The exclusion also applies to the AMT. Qualifying small-business stock is from a C corporation whose gross assets do not exceed $50 million and who meet a specific active-business requirement.

If you have any questions regarding this Alert, or for further information, please contact Michael A. Gillen, director of the Tax Accounting Group, Steven M. Packer, manager in the Tax Accounting Group, or the practitioner with whom you are regularly in contact.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions