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The Jobs Act of 2010 – A Brief Analysis

The Small Business Jobs Act of 2010 was signed into law on September 27, 2010. Below is a brief summary of some of the provisions:

Enhanced Depreciation Deductions

The Section 179 deduction that allows taxpayers to deduct the purchase of certain assets in the year of purchase rather than over the course of several years is doubled to $500,000 for 2011. The cap, meaning the most you can spend on such assets in a single year, is also increased to $2,000,000, up from $800,000 in 2010.

Also new for 2011, qualified real property is eligible for the Section 179 deduction up to $250,000. Qualified real property consists of certain leasehold improvements, restaurant and retail improvement property. This is significant as real property was not previously eligible.

The 50% first year “bonus depreciation” is also extended until December 31, 2010.

Increased Deduction for Start-Up Costs

Starting in 2010, taxpayers may deduct up to $10,000 in start-up expenses. The remaining costs must be capitalized and deducted over 180 months. The deduction is reduced dollar-for-dollar once the taxpayer spends more than $60,000 for start-up costs in a year. The old law allowed for a $5,000 deduction with a $50,000 limit.

Gain Exclusion for Qualified Small Business Stock

Individuals may exclude the gain realized on the sale or exchange of “Qualified Small Business Stock” held for more than five years. The Jobs Act of 2010 states that Qualified Small Business Stock acquired after September 27, 2010 and before January 1, 2011 may be eligible for a 100% exclusion of capital gains.

Fringe Benefits

The Jobs Act reduces the substantiation requirements for employer-provided and employee-owned cell phones. Employers can now provide cellular phones to employees (they still need to demonstrate a business purpose) without tax consequence to the employee, and the new law also makes it easier for employees to deduct costs related to personal cell phones used for work.

New for 2010, individuals will be able to deduct the cost of their health insurance when calculating net earnings from self-employment. This differs from the old law in that instead of just being able to take the deduction in calculating income tax, costs of health insurance can now be deducted when calculating self-employment taxes (15.3% for many individuals). This can result in substantial savings to self-employed individuals that pay for health insurance.

Additional 1099 Requirements of the Small Business Jobs Act

The Jobs Act places additional reporting requirements on individuals who receive rents from real estate. Under the old law, individuals that were not primarily in the business of renting real estate were exempt from issuing Forms 1099. The new law provides that all individuals that receive rents from real estate (unless that individual receives a “minimal amount” – an amount to be determined by the Tax Commissioner) are considered to be in the business of renting real estate, and as such, are now subject to the 1099 requirements.

This new law is effective for all payments made after December 31, 2010. This law will most likely affect the numerous individuals that casually own rental properties. They will be required to issue 1099’s to any provider of goods or services (accountant, handyman, lawn service) to whom they pay more than $600 per year.

The new law also doubles the penalties associated with non-filing of 1099s.

We hope you find this analysis helpful. As always, call if you have any questions.

Jon Majkut, CPA

Majkut CPAs LTD

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