President Obama Signs Small Business Act Providing Significant Tax Benefits
On September 27th President Obama signed the Small Business Jobs Act of 2010 into law. The Act contains several tax provisions that may prove beneficial to many small businesses and their owners. Some of the key provisions are as follows:
- Temporary exclusion of 100% of the gain realized on the sale of Internal Revenue Code (“IRC”) § 1202 small business stock held for 5 years.
- Temporary shortening of the recognition period for which an S-Corporation disposing of certain assets is subject to built-in gain tax.
- Increased expensing limitations under IRC § 179 and the inclusion of certain categories of depreciable real property within the definition of “Section 179 Property”.
- One-year extension of bonus depreciation.
- Increase in the amount of deductible start-up expenditures under IRC §195.
- Allowance of a deduction in 2010 for health insurance costs in determining self-employment tax.
- Removal of cell phones from the definition of “listed property”.
- Taxpayers may rollover amounts in elective deferral plans to Roth IRAs.
The Act also introduces information reporting requirements for recipients of rental income from real estate. The reporting requirements are imposed on recipients of rental income. Thus, tenants are not covered. These taxpayers are now subject to the same information reporting requirements as those taxpayers engaged in a trade or business. Penalties for failure to furnish correct informational returns are also increased by the Act.
Most significantly, the Act limits the amount of the penalty for failure to disclose a reportable transaction under IRC § 6707A to 75% of the decrease in tax shown on the return as a result of such transaction (or which would have resulted from such transaction if such transaction were respected for Federal tax purposes) with a minimum penalty of not less than $10,000 or $5,000 in the case of a natural person. The amendment to § 6707A applies to any penalties assessed after December 31, 2006.
The Internal Revenue Service has assessed many penalties under the previous version of IRC § 6707A on participants in IRC § 419A(f)(6) (10-or-more employer plans) deemed to be listed transactions that are the same as or similar to those plans described in Notice 95-34 and on IRC § 412(i) plans deemed to be listed transactions under Rev. Rul. 2004-20. Prior to the amendment, these penalties were $100,000 in the case of natural persons and $200,000 in any other case. Some of the tax breaks provided for in the Act expire on 12/31/2010 (for example: the 100% exclusion on the sale of § 1202 stock acquired between passage of the Act and 12/31/2010), leaving less than 3 months for planning and implementation.
Andreozzi Bluestein LLP can provide your legal counsel needs as to how to request the now mandatory reduction (or abatement) of these penalties as a result of the Small Business Jobs Act.
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