What are the main provisions of the Small Business Jobs Act of 2010?
In an effort to provide financial assistance to small businesses, Congress has passed the Small Business Jobs Act of 2010 (H.R. 5297 or the “Act”) which was signed into law by the President on September 27, 2010. The Act primary purpose is “to encourage investment and job creation in part by establishing a $30 billion small business fund.” The tax provisions of the Act aim to provide tax relief primarily to small businesses.
1.Temporary Deduction of Health Insurance Costs
For 2010 the cost of health insurance for an individual taxpayer and immediate family is excluded from the income base used to compute self-employment tax.
The main purpose of this provision to to provide a "small reduction in tax to sole proprietors and partners who derive self-employment income."
2. Removal of Cell Phones from “Listed Property” Limitations
The IRS requires stringent recordkeeping for adequate substantiation of business use of “listed property,” such as passenger automobiles, in order to obtain tax deductions for business use of such property. Under the Act, cell phones are removed from the definition of listed property beginning with 2010.
"Congress now recognizes that their extensive daily use makes it infeasible to keep detailed records separating business and personal use."
3. Limitations on Penalty for Failure to Disclose Reportable Transactions
Taxpayers are required to disclose with their tax returns certain information with respect to reportable transactions in which the taxpayer participates, such as the following;
3)transactions with contractual protection,
4)certain loss transactions, &
5)transactions of interest.
The penalties for failure to disclose reportable transactions vary depending on whether or not the transaction is a listed transaction and whether the taxpayer is an individual.
Under prior law, the penalty for failure to disclose a listed transaction was $100,000 for an individual taxpayer and $200,000 for any other taxpayer, and the penalty for failure to disclose a reportable transaction other than a listed transaction was $10,000 for an individual taxpayer and $50,000 for any other taxpayer.
For tax years beginning with 2010, the Act changes the general rule for determining the amount of the applicable penalty to achieve proportionality between the penalty and the tax savings of the transaction. It also maintains the current penalties as the maximum penalties and sets a minimum penalty. The Act "provides for a penalty equal to 75% of the tax savings that result from participating in the transaction. Furthermore, the minimum penalty is $5,000 for individual taxpayers and $10,000 for all others."
4. Increase in Information Return Penalty
The Act "increases the penalties for failure to timely file information returns with the IRS and failure to provide information returns to taxpayers (such as Forms W-2, 1099 and 1042) effective for information returns required to be filed after 2010."
The Act states that these penalties will remain in three tiers depending on when, if at all, the information return is filed or provided. However, the Act increases each tier so that, in general, the top-tier penalty increases from $50 to $100 per report and the maximum penalty increases from $250,000 to $1.5 millionper year.
Fortunately, the Act also provides lower maximum penalties for small businesses.