Archive for the ‘Small Business Jobs and Credit Act of 2010’ Category

Issue Number: IR-2011-126

December 27, 2011

WASHINGTON—The Internal Revenue Service and Treasury Department today published in the Federal Register temporary regulations that provide guidance to taxpayers on the treatment of amounts paid to acquire, produce or improve tangible property and regarding the accounting for, and dispositions of, property subject to depreciation. These regulations provide objective standards and bright-line rules intended to simplify compliance with the capitalization provisions contained in section 263(a) of the Internal Revenue Code.

The temporary regulations generally are effective for expenditures made on or after Jan. 1, 2012, and therefore these regulations do not affect taxpayers’ 2011 tax returns. The IRS and Treasury Department anticipate publishing additional guidance that will advise taxpayers regarding how to obtain automatic consent to change to a method of accounting provided in the temporary regulations for taxable years beginning on or after Jan. 1, 2012. These automatic consent requests may be filed beginning with taxpayers’ 2012 tax returns. Taxpayers may not request a change to a method described in the temporary regulations on their 2011 tax returns.

The temporary regulations also were released as a notice of proposed rulemaking, offering taxpayers the opportunity to comment on the rules. Written comments are requested by March 26, 2012, and a public hearing on the regulations is scheduled for April 4, 2012.

Small business owners are due for some good news courtesy of the Senate’s passage of the Small Business Jobs and Credit Act of 2010.  Originally passed by the House of Representatives in June, the Senate version contains a key amendment, authored by Senators Mary Landrieu and Max Baucus, which could provide tremendous tax benefits for small businesses:

1. Enhanced General Business Credit Utilization – For the 2010 Tax Year, Eligible Small Businesses (generally defined as sole proprietorships, partnerships, and non-publicly-traded corporations under $50MM in annual gross receipts) may apply general business credits against alternative minimum tax liability and carry-back unused general business credits to the prior five years.  Taxpayers who have considered claiming certain general business credits in the past (such as the R&D Credit), but elected not to proceed due to utilization restrictions should consider claiming these credits for the 2010 tax year.
2. §1202 Gain Exclusion – 100% exclusion of gain under IRC §1202 from the sale of certain small business stock acquired at original issue and held for more than five years.  The gain would not be an AMT preference item.
3. Relief on Built-In Gains for Corporations That Previously Elected to Become S-Corporations – For tax years beginning after December 31, 2010, the Amendment reduces the recognition period for S-Corporation built-in gains to the five year period beginning from the first day for the first taxable year for which the corporation was a S-Corp.
4. §179 Enhancements:
   1. Increases the §179 expensing maximum to $500,000 and phase out threshold to $2,000,000 for tax years beginning in 2010 and 2011.
   2. Enables expensing of up to $250,000 for qualified real property placed into service after 12/31/2009.
5. 50% first-year “Bonus Depreciation” is extended to property placed into service in 2010.
6. §195 Enhancements – The amendment provides for an increase of the deduction for start-up expenses from $5,000 to $10,000, as well as an increase in the phase-out threshold from $50,000 to $60,000.

Other areas which tax providers and business owners should note include changes to the 6657, 6707A, 6721 and 6722 penalties, deductions for health insurance costs for self-employment taxes, favorable changes for participants in 401(k), 403(b) and 457(b) plans, and changes to the §40 bio-fuel production credit.

ETS will provide updates as this bill is set to become law.  If you have any questions, please feel free to contact us.