This week, Congress passed the Small Business Jobs and Credit Act. And President Obama signed it on Monday. It provides numerous tax incentives for small business owners. Here are some key provisions that may benefit agriculture:
- Enhanced Section 179 depreciation deductions: The maximum deduction is raised to $500,000 for 2010 and 2011 with a phase-out threshold of $2 million. Eligible assets include computers, office equipment, and furniture. Certain real estate improvement costs now qualify for Section 179 deductions of up to $250,000.
- "Bonus depreciation" is back: The bonus depreciation tax break, which expired after 2009, was restored for 2010. A business may claim a deduction equal to 50% of the cost of qualified assets, including vehicles. An extra year of bonus depreciation through 2011 is allowed for property with a cost recovery period of 10 years or more. Qualifying new assets must be placed in service by December 31, 2010.
- Start-up expense deductions increase: The new law doubles maximum deduction for 2010 to $10,000 with a $60,000 phase-out threshold. But the figures revert back to prior amounts in 2011.
- Restrictions on business credits removed: The new law allows "eligible small businesses" to use of general business credits to offset a taxpayer's alternative minimum tax liability. Beginning this year, an eligible small business may carry back general business credits for five years instead of one.
- Better tax treatment for non-public biz stock: Assuming certain requirements are met, an investor in "qualified small business stock" may exclude part of the gain from the sale of the stock after a five-year holding period. The 2009 stimulus law increased that exclusion to 75% for acquisitions after February 17, 2009 and before January 1, 2011. The new law allows a 100% exclusion for acquisitions from September 27, 2010 through December 31, 2010.
- Cell phones recordkeeping eased: Under the new revisions, you no longer have to track business and personal use of cell phones and similar communications devices to claim deductions. And, employer-provided devices are considered as tax-free fringe benefits.
- Self-employed health insurance break: For 2010 only, eligible self-employed people can deduct health insurance premiums from the self-employment income subject to employment tax.
- Easier Roth contributions: Beginning in 2011, participants in state and local government-operated 457 plans (other than nonprofits) can contribute deferred amounts to Roth accounts. Participants in 401(k) and 403(b) plans already have this ability. For 2010 rollovers, you can opt to have the taxable income split between 2011 and 2012.
There are more details to each provision. Always consult with your tax adviser before taking action.
Information provided courtesy of Stambaugh Ness, financial consultants headquartered in York, Pa.