On Sept. 27, 2010, President Barack Obama signed into law H.R. 5297, the Small Business Jobs and Credit Act of 2010.
In summary, the law will establish a $30 billion lending fund for small businesses, provide $12 billion in tax breaks and make changes to federal small business programs to address the ongoing effects of the financial crisis on small businesses.
“This new legislation also provides incentives targeted to small business owners,” says John T. Alfonsi, CPA, ABV, CFF, CFE, CVA, a shareholder at Cendrowski Selecky Professional Corp.
Smart Business spoke with Alfonsi about the Small Business Jobs and Credit Act of 2010 and how it could affect your business.
What are key provisions of the legislation?
Depreciation deductions are a key component of the legislation. Specifically, the expensing election under IRC Section 179 was enhanced. In addition, bonus depreciation was restored and start-up expense deductions were increased.
How will the new depreciation rules work?
Under IRC Section 179, businesses are allowed to deduct the cost of qualifying property placed in service during the year rather than capitalize the cost and depreciate it. Prior to the new legislation, the maximum amount a business could deduct under IRC Section 179 for 2010 was $250,000. This deduction amount was phased out, however, when the total cost of qualifying property acquired in the year was greater than $800,000.
The new law increases the maximum deduction amount to $500,000 for 2010 and 2011, with the phase-out threshold of $2 million. This will allow businesses to directly expense a large portion of fixed assets acquired in 2010 and 2011 rather than depreciate them over time.
What is happening with bonus depreciation?
Bonus depreciation expired in 2009. The legislation reinstates the bonus depreciation rules for 2010, whereby a business can claim a deduction equal to 50 percent of the cost of qualified assets, including vehicles. These assets generally must be placed in service by Dec. 31, 2010. The Section 179 deduction and bonus depreciation deductions can be combined to offset a large portion, if not all, of a business’s fixed asset acquisitions for 2010.