Q: Under the Small Business Jobs Act of 2010, is there any effect on Built In Gains (BIG) Taxes for S corporations that were once C corporations?
A: Yes, under the Small Business Jobs Act of 2010, BIG taxes will temporarily have a shortened holding period. Ordinarily, the holding period was 10 years. It then became 7 years. In 2011, as long as the fifth year of holding precedes the beginning of 2011 and the sale is made during 2011, BIG will not be taxable.
Q: I am selling my business this year under an installment agreement. Can I elect to recognize the taxes this year as to avoid the higher tax rates?
A: Yes, you can elect, on installment sales, to have the future proceeds be taxed in the current year, thus saving you 5% of the total. For those with million dollar capital gains, the savings could be $50,000 or more in taxes alone. It is definitely an option worth exploring if you sold your business this year or if you are receiving installment income in the future.
Q: Under the Small Business Jobs Act of 2010, what are the adjustments to Section 179 expensing?
A: Section 179 expensing has been increased from $250,000 to $500,000. The $500,000 limit is retroactive to purchases made from January 1, 2010 and runs until the end of 2011. Additionally, 50% Bonus depreciation is back as well this year. Bonus depreciation is not dependent on any investment limit like Section 179 is.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors