Tuesday, October 12, 2010

Qualified Small Business Stock

One of the most overlooked aspects of incorporating is the use of Qualified Small Business Stock (QSBS), but thanks to recent changes, the use of this stock may be more attractive than ever.

For small businesses forming from September 16, 2010 through December 31, 2010, the excluded gain upon sale of the business may qualify for 100% exclusion.

There are certain limitations as to what type of businesses qualify for QSBS, as well as dollar contribution limitations. But, if you are looking to incorporate a business between now and year end you owe it to yourself to look into QSBS and talk to a tax professional about its benefits and limitations.

Please note- in order to qualify you must hold the stock for at least five years, and other limitations do apply.

Start-up expense deductions increased for 2010

Business start-up costs, also known as Section 195 costs can traditionally be expensed up to $5,000. Amounts beyond this limitation must be amortized. However, thanks to recent changes starting in 2010 tax year the allowable expense has increased to $10,000.

Qualified real property expensing

For the first time, certain real property can be expensed under code section 179.

First I will list items that will apply, then I will list specific items that do not apply, then I will talk about further limitations.

So to start out, types of property that definitely apply include:

1. Qualified leasehold improvement property

2. Qualified restaurant property.

3. Qualified retail improvement property

Types of property that do not apply include lodging property.

Further limitations apply to the deductibility of 179 deprecation of real property. One such example is that no amounts may be deducted in a year after 2010, so you must use your deduction in 2010, then depreciate the remaining property value as you would have without considering 179 depreciation, after the 2010 tax year (similar calculation as using section 168(k) bonus depreciation).

Section 179 Deduction increased for 2010 & 2011

Thanks to the small business jobs bill, key business deductions have been extended through 2010. One of which is the section 179 deduction. For 2010 and 2011, section 179 depreciation has been increased to a maximum allowable $500,000 per business per year (limited to the extent of income). This bill also increased the beginning phase-out of property placed in service limitation to $2,000,000.