On September 27, 2010, President Obama signed the Small Business Jobs Act (the Act) into law. The Act will benefit small businesses in several ways, including extensions of Small Business Administration (SBA) lending programs and tax breaks.
On October 5, 2010, the SBA approved small business loans for 2,000 small business owners. Additionally, the new law allocated $23 million to the State of Maryland to expand small business lending programs.
The Act also provides for several immediate tax incentives targeted at businesses. Some of the highlights of the bill include:
1. Increased Deduction for Start-up Expenditures: Before the Act, entrepreneurs could either amortize their start-up cost deduction over a period of at least 5 years or immediately deduct up to $5,000 of their start-up expenditures in the tax year in which their business began and amortize the balance of start-up costs over a 15-year period. Also, the immediate deduction was reduced by every dollar the total start-up expenditures exceeded $50,000. The Act increases the immediate write-off cap from $5,000 to $10,000 for 2010 and increases the phase-out threshold to $60,000. Any remaining start-up costs that cannot be immediately written off must still be amortized over a 15-year period.
2. Increased Small Business Expensing: Significant changes were made to the business expensing rule in Section 179, which provides a form of accelerated depreciation. Formerly, a small business could only expense for a tax year up to $250,000 of certain property purchased that year and, if the value of that category of assets bought that year exceeded $800,000, then for each dollar that the total exceeded $800,000, the allowable deduction was reduced by a dollar. In 2010 and 2011, the small businesses expense amount has doubled to $500,000, and the phase-out threshold is increased to $2 million. Additionally, the type of eligible property was expanded to include certain qualified real property.
3. Small Business Stock Exclusion: To encourage investment in small businesses, the Act permits individuals to exclude 100% of their gain on qualified small business stock purchased between September 27, 2010 and January 1, 2011, so long as the individual holds the stock for at least 5 years. Further, the gain is not treated as an alternative minimum tax preference item.
In addition to the Small Business Jobs Act, please see our recent post regarding the Maryland Job Creation and Recovery Tax Credit, which is legislation aimed at Maryland businesses that may also benefit small business owners.