On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "Act"), which is expected to simulate the economy by providing tax relief to individuals and businesses. The Act reinstates many of the Bush-era tax cuts that expired in 2009 and extends others that were scheduled to expire on December 31, 2010. Some of the more notable provisions affecting businesses are highlighted below.
100% Bonus Depreciation
The Act extends the 50% bonus depreciation to qualified property acquired after December 31, 2007, and before January 1, 2013, and permits 100% bonus depreciation for qualified property acquired and placed in service after September 8, 2010, and before January 1, 2012. Unlike Section 179 expensing, bonus depreciation is available to all businesses (regardless of size) and does not apply a monetary cap.
Section 179 Expensing Limits
For 2012, small businesses may elect to expense up to $125,000 (adjusted for inflation) of capital investment with a phase-out for income above $500,000 (adjusted for inflation). After 2012, the limits are reduced to $25,000 and $200,000, respectively (no adjustment for inflation).
Research Tax Credit
The Act reinstates the research tax credit, which expired December 31, 2009, for amounts paid or incurred on or before December 31, 2011.
Work Opportunity Credit
Enacted on December 17, 2010, the Work Opportunity Credit (the "Credit") provides an incentive for businesses to employ individuals from certain disadvantaged groups. The Credit is equal to 40% of the first $6,000 of eligible wages paid to new hires from certain designated groups. The Act extends the Credit, which was scheduled to expire August 31, 2011, through December 31, 2011.
2011 Employee Payroll Tax Cut
The Act reduces the social security tax rate from 6.2% to 4.2% and reduces the self-employment tax rate from 12.4% to 10.4%. The employee payroll tax cut is effective for 2011 only.
15-Year Straight-Line Cost Recovery
The Act extends the 15-year straight-line cost recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements for qualified property placed in service before 2012. Pre-Act, the special recovery period only applied to qualified property placed in service before 2010.
Qualifying Small Business Stock - 100% Gain Exclusion
Pre-Act, noncorporate taxpayers could exclude 100% of gain from the sale of certain qualifying small business stock ("QSBS") that was acquired after September 27, 2010, and before January 1, 2011, and held for five years. The Act extends the 100% exclusion to QSBS acquired after December 31, 2010, and before January 1, 2012, and held for more than five years.
The Act also contains business incentives and tax relief provisions related to energy, disaster, and charitable contributions.
For more information on the Act or other business matters, please contact Emerson Dorsey.