Small Business Jobs and Credit Act (SBJCA) of 2010

The Small Business Jobs and Credit Act of 2010 (SBJCA) was signed into law in September 2010. The law created incentives for entrepreneurs to create small business enterprises. It also established certain incentives for small businesses to remain in operation and hire new employees.

Some of the provisions were time limited; some were time-limited to the 2010 tax year. So questions about whether it is still effective law are best directed to a business lawyer or a tax lawyer.

What Are Some of the Basic Provisions of the SBJCA?

The SBJCA creates new benefits for small businesses in several areas. Of course, a full list of the provisions can be found by reviewing the Act in its entirety. It is rather technical and complex, so it might be worthwhile to consult a business lawyer and a tax lawyer regarding its tax-related provisions.

Meanwhile, in summary, some of the new benefits that the law created are as follows:

• Tax Breaks: SBJCA created two major tax deductions for small business owners:
  • Health Insurance Premiums: For self-employed business owners or sole proprietors, a tax deduction was available for their health insurance premiums in 2010. It also lowered self-employment-related taxes. The deduction was available for premiums paid for insurance coverage for the business owner, their spouse, and their dependents up to the age of 26 for the 2010 tax year;
  • Start-up Costs: There is an additional $5,000 tax deduction for costs related to small business start-ups. The value of the deduction increases from $5,000 to $10,000;
• Higher Limits on Loans: The Act launched the Small Business Lending Fund Program, administered by the Treasury Department. It offers billions of dollars to local banks to lend to small businesses. Also, the Lending Fund Program increased the limit on funds that the Small Business Administration (SBA) can lend to small businesses. Finally, the Act eliminated many of the fees associated with most SBA-approved loans;
• Various Section 179 Deductions and Expensing Provisions: Small business owners can invest more in their company equipment and expense up to $500,000, an increase from the previously allowed amount of $250,000. Now certain items can be expensed, such as real property, computer software, and even cell phones;
• Exclusion of 100% of Gain on the Sale of QSBS: The 2010 SBJCA also included various tax provisions, including a provision amending the Internal Revenue Code of 1986 so that it allows the temporary exclusion of 100 percent of any gain realized on the sale of certain qualified small business stock (QSBS) as defined in the Code.
  • Previously, stockholders were generally permitted to exclude only 50 percent of the capital gain on the sale of QSBS or 75 percent of the capital gain on such stock acquired after February 17, 2009, and before January 1, 2011. The 2010 SBJCA increased the exclusion to 100 percent, but only for QSBS acquired between September 28, 2010, and December 31, 2010. Later, the 2010 Tax Relief Act extended the 100 percent exclusion period to cover QSBS acquired after December 31, 2010, and before January 1, 2012.

Qualified small business stock may generally be issued only by a “qualified small business,” as the Code defines. A qualified small business:

• Is a domestic corporation in the U.S.;
• Is in possession of gross assets which, at all times on or after August 10, 1993, through the time of and following the issuance of the QSBS, have a value that is not greater than $50 million; and
• Agrees to submit any reports to the IRS and shareholders that the IRS may require to carry out the purposes of Section 1202.

There are several other requirements that stock must meet to qualify as the stock of a qualified small business. If this provision interests small business owners, they should consult a qualified tax lawyer for additional information. If the requirements associated with issuing QSBS are satisfied, people who can claim the exclusion may realize significant tax benefits.

Still, other provisions are as follows:

• It permits the deduction or depreciation of the costs of cell phones just as other business property;
• It permits business owners to deduct the cost of health insurance incurred during 2010 for themselves and their family members in the calculation of their 2010 self-employment tax;
• Creates the State Small Business Credit Initiative;
• Introduces a new requirement for owners of rental property to file information returns on Form 1099 to report certain payments made to suppliers of services;
• Allow participants in 457(b) Plans to treat elective deferrals as Roth contributions.

Thus, the 2010 SBJCA is advantageous for small business owners and those who wish to start their own small businesses. A person may wish to consult with a lawyer to get additional details regarding the Act, as it is complicated and contains several other provisions.

What Are Some Drawbacks of the SBJCA?

As with any new law, the SBJCA came with a few drawbacks. The main concern regarding the SBJCA is its new IRS reporting requirement. According to the Act, small business owners must file an IRS Form 1099 for goods costing more than $600. In the past, a business would only have to file a Form 1099 if it purchased services costing more than $600, such as an appraisal for which it paid more than $600 in fees.

Under SBJCA, however, whenever a small business owner purchases machinery or equipment that costs more than $600, they are now required to file a form 1099. This has been criticized as an unnecessary waste of resources for small business owners because they have to allot more time and money to fill out the forms.

Again, a small business owner may want to consult a tax attorney to identify the tax provisions that may negatively impact their small business.

How Do I Take Advantage of the Benefits Offered by the SBJCA?

To maximize the benefits of the SBJCA, a person needs to take action relatively quickly. The effectiveness of some of the provisions was time limited.

For example, small business owners had only one tax year to claim the tax deductions for health care premiums. In addition, the expensing provisions with regard to Section 179 deductions were only offered until 2011. The Form 1099 reporting requirement for goods over $600 took effect in January 2011.

Do I Need a Lawyer for Issues Related to SBJCA?

If you are considering starting a small business or are currently operating one, you should consult with a small business lawyer in your area to see how the Small Business Job and Credit Act of 2010 may still affect your business.

Your lawyer will be able to make sure you are following proper accounting principles and business management best practices. Also, a small business lawyer would be able to advise you on whether and how you can still benefit from the provisions of the SBJCA of 2010.

In the event of a legal dispute, your attorney can provide guidance and representation in a lawsuit. They can also keep you abreast of any updates to the law that might affect your legal claim.