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Hit the Gas to Get the Breaks: 2010 Tax Relief Act and Small Business Jobs Act of 2010 Provide Limited Time Business Planning Opportunities

Congress spent a great deal of time and effort in 2010 dealing with tax legislation, including the 2010 Tax Relief Act (the “Relief Act”) and the Small Business Jobs Act of 2010 (the “Jobs Act”).  Viewed individually, as well as in the aggregate, the Relief Act and the Jobs Act present significant planning opportunities for business owners.  Most of the provisions of the Relief Act and the Job Act have immediate impact, but many of the provisions are valid only for a limited time.

Below is a summary of certain of the key provisions of the Relief Act and the Jobs Act.

  • Extension of Current Income and Capital Gain Tax Rates.  Following a great deal of discussion about increased tax rates, the Relief Act extends current income and capital gain tax rates through 2011 and 2012.   However, because the extension of current rates is for only two (2) years, the Relief Act creates both uncertainty for the future and planning opportunities for the present.
  • Capital Investment Incentives.  The Relief Act and the Jobs Act provide for faster depreciation and immediate write off deductions for a variety of eligible capital investments (including business equipment and certain types of real estate).  Many of these benefits are only available during 2011, creating significant tax planning opportunities for the immediate future.
  • Small Business Investment Incentives.  The Relief Act and the Jobs Act encourage investment in small business by allowing purchasers of stock in certain small business to avoid income tax on any capital gains resulting from such stock.
  • Extension of Credits for Preferred Business Activities.  The Relief Act extends various tax credits for business activities preferred by Congress, including research and development, hiring new workers and contributions to nonprofits.  However, the Relief Act only extends these tax credits through 2011, again creating future uncertainty and immediate opportunities for the present.
  • Business Succession and Exit Planning.  After significant debate regarding proposed increases to estate and gift tax rates and corresponding decreases in estate and gift tax exemption amounts, the Relief Act actually provides for lower tax rates and higher exemption amounts for estates and gifts.  However, the reduced rates and increased exemptions are only extended through 2012. Business owners should strongly consider wealth transfer planning to take full advantage of the lower rates and higher exemption amounts before the end of 2012.  The changes included in the Relief Act also increase the opportunities available for business owners to efficiently transfer businesses to their children and future generations by increasing lifetime gifts and utilizing advanced wealth transfer tax opportunities (including the use of trusts).