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New Law Steps Up Tax Breaks, Contractor Rules

Friday, September 24, 2010

New tax benefits, changes in capital lending, and a tighter rein on slow-paying contractors are all part of the Small Business Jobs and Credit Act of 2010 that President Obama is expected to sign Monday (Sept. 27).

The U.S. House voted Thursday (Sept. 23) to approve the legislation (H.R. 5297), which contains a wide range of small-business financial supports, including credit access, regulatory relief, management assistance, retirement fund changes, crackdowns on Medicare fraud, contractor integrity issues, and export promotion.

The bill, sent to Obama for his signature Monday, establishes a federal Small Business Lending Fund, a seven-year State Small Business Credit Initiative, and a Small Business Early-Stage Investment Program, and provides numerous tax-relief provisions known collectively as the Small Business Jobs Tax Relief Act of 2010.

Key Provisions

The legislation allows businesses to, among other things:

• Expense up to $500,000 on capital expenditures in 2010 and 2011. The write-off phases out for capital expenditures of $2 million or more.

• Write off up to $250,000 on improvements to qualified rental, restaurant and retail properties in 2010 and 2011.

• Write off 50% of the cost of new tangible depreciable property, including qualified construction equipment, purchased and placed in service in 2010.

• Deduct from self-employment tax the cost of health insurance incurred in 2010 by business owners and their family members.

• Deduct or depreciate the cost of cell phones and similar equipment without the record-keeping needed to substantiate their “business purpose.”

• Benefit from bonus depreciation for contracts not completed in the same year they are entered.

The bill also requires prime contractors that develop small-business contracting plans to explain to contracting officers any reduced or late payments made to subcontractors.

Contracting officers, in turn, will be required to record and disseminate information about prime contractors that have “a history of unjustified, untimely payments to subcontractors.”