Small Business Jobs Act of 2010
On September 27, 2010 the President signed into law the Small Business Jobs Act of 2010. The act includes a few new incentives for both individuals and small businesses. We have outlined some of the more interesting provisions below:
Health Insurance Costs deductible in computing Self-employment Tax – Under prior law, health insurance premiums paid on behalf of a self-employed person and their family was deductible as an above-the-line deduction in computing taxable income, but was not allowed as a deduction against the self-employment tax. Under the new law, Individuals may now deduct the cost of health insurance premiums for themselves, their spouse, and their dependents up to age 26 as a trade or business expense for purposes of computing both income tax and the self-employment tax. There are still certain restrictions, such as the prohibition of the deduction for any month the taxpayer is eligible to participate in a subsidized health plan maintained by their spouse’s employer, and the limitation of the deduction to earned income for the year.
Section 179 Expense Limits Increased – Under the new law, Section 179 expense amounts for new assets placed in service for tax years beginning in 2010 or 2011 is increased to $500,000 for total property placed in service up to $2,000,000, and is phased out dollar for dollar for property placed in service beyond the $2,000,000 limitation. This is a substantial increase over the prior limit of $250,000. California still limits Section 179 expense to $25,000.
Section 179 Expense for “Qualified Real Property” – Under the new law, there is now allowed an expense of up to $250,000 under Section 179 for “Qualified Real Property”. This new definition encompasses improvements such as qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property. These items are now eligible for Section 179 expense, up to $250,000 in 2010. The $500,000 and $2,000,000 limitations discussed above still apply.
50% Bonus Depreciation Extended – The special 50% bonus depreciation allowance has been extended through 2010, so any new property placed in service by December 31, 2010 will qualify for bonus depreciation.
Roth conversion provisions extended to elective deferral plans – The new law allows 401(k), 403(b), and governmental 457(b) plans to permit participants to roll over their pre-tax account balances into a designated Roth account. Amounts rolled over or “converted” will still be taxed as ordinary income and subject to the current rules (including deferral of tax until 2011 and 2012) as a normal Roth IRA conversion is. Under prior law these rollovers were only allowed from an elective deferral plan into a Roth IRA; you were not allowed to keep your money under the same plan. Plans will need to be amended to ensure this provision is allowable under the plan documents, so we strongly recommend you consult with your pension advisor or consultant to ensure your documents are up to date.
There are a few other provisions to the new act as well, and we invite you to contact your LMGW advisor for more information on the provisions of the new act.
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