On June 29, the Senate agreed to take up the House’s Small Business Jobs and Credit Bill of 2010 (HR 5297). The Senate added a substitute amendment to the House approved version, which contained additional Senate tax proposals including the extension of the 50% bonus depreciation deduction through 2010.
Bonus depreciation was first enacted in 2008, as part of the Bush stimulus package and was later extended through the end of 2009 by the American Recovery and Reinvestment Act of 2009 (ARRA). A measure to extend bonus depreciation was not included in the Tax Extenders bill, which currently is stalled in the Senate. Enactment of the bonus depreciation provision would allow businesses to immediately write-off 50% of the cost of new depreciable property placed in service in 2010; or by January 1, 2012, for property having longer production periods (including corporate aircraft).
The bonus depreciation extension was introduced by Senators Baucus (D-Montana) and Grassley (R-Iowa). The Senators made the following comments regarding the bonus depreciation incentive:
“Small business owners in Montana and across the nation have made clear that bonus depreciation has been extremely helpful for their companies’ growth and development. When small businesses are able to recoup the cost of purchases more quickly, they have more cash on hand to invest back in the business and create jobs,” said Baucus. “This tax cut provides a double benefit by creating an opportunity for small businesses to purchase new equipment while also helping the companies that manufacture and sell equipment to small businesses.”
“One of the vital elements of an economic recovery is increased business investment,” Grassley said. “Bonus depreciation is a time-tested temporary incentive for increased business investment. Chairman Baucus and I are sending a bipartisan signal to America’s businesses to increase investment and create jobs. It’s especially important for small businesses to use this provision, since they create 70 percent of all new jobs.”
Some of the other significant proposed tax benefits included in Small Business Jobs Act of 2010, are:
- A temporary exclusion of 100% (versus 50%) of gain on certain small business stock acquired in 2010.
- A 5-year carry-back of general business credits of small businesses for 2010.
- A reduction in the recognition period for built-in gains tax for S corporations to 5 years in 2011.
- An increase in the Section 179 expensing limitation to $500,000 for taxable years beginning in 2010 and 2011.
- Application of Section 179 expensing for up to $250,000 of the cost of qualified real property used in a trade in business.
- An increased deduction for business start-up expenditures for 2010 from $5,000 to $10,000.
- A deduction for self-employed health insurance costs in computing self-employment taxes in 2010.
Debate on the Small Business Jobs Act of 2010 is expected to begin after the Senate returns from its recess on July 12. We will closely follow the progress of the bill through the Senate and House approval process and keep you advised of significant developments.
The extension of the bonus depreciation deduction and increased Section 179 expensing provisions could have a significant impact on your capital expenditure planning during the remainder of 2010.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.