Small Business Jobs Bill – Tax Breaks, Credits, SBA Loans, and Bonus Depreciation

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[Update Sep 2010] Following on from President Obama’s plans to help small business, Congress and the President have approved the Small Business Jobs Bill ( H.R. 5297) to cut taxes, provide more SBA funding and ease credit for small businesses (details below). The legislation would create a $30 billion lending program and provide small businesses with $12 billion in tax breaks, including more generous write-offs for equipment purchases.

“Reinvigorating our economy in the short run and rebuilding it over the long term is not a one-step process,” Obama said today. “But this is a critically important one and I am grateful to those senators on the Republican side of the aisle willing to take this vote on behalf of America’s small- business owners.”

The lending program is designed to help small business owners who have seen the value of real estate and other types of loan collateral sapped by the recession. The $30 billion lending program would be reserved for banks with less than $10 billion in assets. The bill cut fees on loans offered through the government’s Small Business Administration (SBA) and raises the limits on SBA loans from $2 million to $5 million.

The $30 billion lending program would work by creating a fund that directly invests in “smaller” local and community banks (<$10 billion in assets) through purchasing preferred stock, which returns between 1% to 7% in dividends to the government based on how effective their small business lending programs are. For example, a bank that boosts their small business lending by 10% over last year’s levels would only have to pay the government a 1% dividend. Whereas banks that do not increase their small business lending, could face a dividend repayment of up to 7%. The preferred stock return is also one way the government is able to ensure banks lend money (a major issue with the TARP bank bailouts) and also to pay for this lending program without significantly adding to the deficit.

According to the finance committee fact sheet the final provisions on this bill include:

Access to Capital

- 100% exclusion from capital gains taxes on small business investments. By allowing a 100% deduction of capital investments, businesses of all sizes will be allowed to keep more money now and would give large corporations, many of which are sitting on cash due to uncertainty about the economy, an incentive to spend and invest; thereby creating new jobs
- $1.5 billion in grants to support $15 billion in new small business lending through state programs.
- Allows carry back of general business tax credits to offset tax burdens from tje previous five years.
- Small businesses will also be able to count the general business credits against the Alternative Minimum Tax (AMT), freeing up capital for expansion and job growth
- Creates a targeted $30 billion Small Business Lending Fund to provide small community banks with capital to increase small business lending.  This includes increased SBA  loan limits and lower access costs

Increases Small Businesses’ Ability to Make Investments and Cuts Taxes

- Permitting up to $500,000 in capital investments that businesses can expense
- Extends Bonus Depreciation, allowing small business taxpayers to immediately write off 50 percent of the cost of new equipment
- Increases to $10,000 the tax deduction for start-up expenditures – doubling the current levels.
- Improves tax fairness by preventing small businesses from incurring large tax penalties aimed at large corporations and wealthy individuals investing in tax shelters
- Allows self-employed individuals to deduct health insurance costs for purposes of paying the self-employment tax

Small Business Export and Competition

- The bill creates new tools to help small businesses export goods, which will leverage more than $1 billion in exports. It also establishes a new State Export Promotion Grant Program (STEP), which would increase the number of small businesses that export goods to other countries
- This bill clarifies that no single contracting program receives priority over another program when competing for federal contracts

I will update this post as more details emerge around eligibility and availability of these tax breaks and loans. You can subscribe (free) via Email or RSS to get the latest updates.

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[Update September 2010]  In an effort to provide a sustained job creation program, President Obama called for Congress to approve major upgrades to the nation’s roads, rail lines and runways — part of a six-year plan that would cost tens of billions of dollars and create a government-run bank to finance innovative transportation projects. He also wants to allow businesses to deduct from their taxes through 2011 the full value of qualified capital investments, from computers to utility generators, to boost demand for goods and create jobs.  

“We used to have the best infrastructure in the world and we can have it again. We want to reform the way we fund and maintain our infrastructure to focus less on wasteful earmarks and outdated formulas, and we want competition and innovation that gives us the best bang for the buck,” Obama said, adding “this is a plan that will be fully paid for, it will not add to the deficit over time – we’re going to work with Congress to see to that.”

Small Business Capital Tax Deduction – 100% Expensing or “Bonus Deprecation”

By allowing a 100% deduction of capital investments, businesses of all sizes will be allowed to keep more money now and would give large corporations, many of which are sitting on cash due to uncertainty about the economy, an incentive to spend and invest; thereby creating new jobs. This measure, an expansion of a previous tax incentive designed to encourage businesses to invest in equipment, would cost an estimated $200 billion in revenues though the ultimate net loss would be $30 billion over 10 years, according to administration officials, since businesses would eventually deduct the depreciated value of the equipment in any case. A draft paper on the proposal permitting businesses to write off the full costs of capital spending in 2010 and 2011 said it “would be the largest temporary investment incentive in American history.”

The provision also seeks to expand and make permanent a tax credit for corporations’ research and development expenses; for three decades the credit has been enacted temporarily given its revenue cost and then always extended, but with frequent lapses that frustrate businesses.

Transportation Projects Stimulus Spending

The transportation or infrastructure stimulus calls for a quick infusion of $50 billion in government spending that White House officials said could spur job growth as early as next year — if Congress approves. The plan includes rebuilding 150,000 miles of roads; building and maintaining 4,000 miles of rail lines and 150 miles of airport runways, and installing a new air navigation system to reduce travel times and delays. Central to the plan is the president’s call for an “infrastructure bank,” which would be run by the government but would pool tax dollars with private investment to focus on paying for national and regional infrastructure projects.

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[New 2010-2011 Provisions] To address high unemployment and tight credit markets, President Obama has put in place more stimulus funded tax breaks for small business in his latest budget. The President is pushing Congress to use $30 billion that had been set aside from the TARP program to bail out Wall Street to start a new program that provides loans and tax credits to small businesses, which the White House calls the engine for job growth. This would include the following new 2010 provisions:

** [Update]See more business tax breaks and incentices in the 2010 HIRE Act – Health Care Benefits, Payroll Tax Incentive and Business Credit For Employers Hiring and Retaining Unemployed Workers

- A $5,000 hiring tax credit for each net new employee they hire this year. The $5,000 per-worker tax credit would be available to businesses of any size, and would be retroactive to the start of the year. Startups launched in 2010 would be eligible for half of the tax credit. To prevent fraud and misuse of the tax credits, the IRS (who will administer the credits) would require companies would have to show net increases in their staffing and payroll to qualify. Businesses that cut 20 workers and hire five wouldn’t be eligible, nor would those that lay off a $50,000 worker and hire two $20,000 staffers.

- A reimbursement of the Social Security taxes businesses pay on increases in their payrolls this year. Firms could earn the credit by raising wages or increasing the hours of their current workers, as well as by hiring new employees. The tax credit would be adjusted for inflation, and would not apply to wage increases above the current taxable maximum of $106,800.

- While any business would be eligible for the tax breaks, the refund would be capped at a total of $500,000 per firm, a move the White House hopes will steer the biggest benefits to the smallest companies. Firms eager for cash could claim the credits on a quarterly basis, sparing them the wait before they file their annual taxes.

- Eliminate Capital Gains Tax on Investments in Small Businesses. To create an incentive for long-term investments in the small business sector, the Budget eliminates the capital gains taxes on long-term investments in many small businesses. The Recovery Act (2009 stimulus) temporarily increased the exclusion to 75 percent. The Budget proposes to raise this exclusion to 100 percent, meaning that no income tax whatsoever would be paid on these investments in our Nation’s small businesses.

-Provide funds to support $17.5 billion in SBA 7(a) loan guarantees that will help small businesses operate and expand. The Budget will also support $7.5 billion in guaranteed lending for commercial real estate development and heavy machinery purchases; $3 billion in Small Business Investment Company debentures to support new businesses and new jobs through early-stage and mezzanine small business financing; and $25 million in direct microloans, for intermediaries to provide small loans to emerging entrepreneurs and other promising, but “un-bankable,” borrowers. In addition, the Budget proposes to significantly increase the maximum loan sizes on SBA loans, including an increase from $2 million to $5 million for 7(a) business loans, to further improve small business access to credit.

The administration expects 1 million businesses to benefit from these new provisions. I will continue to update this article as the budget is reviewed by Congress and I encourage you to subscribe (free) via Email or RSS to get the latest news.

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[2009 Enacted Tax Breaks] There is little doubt that small businesses are the heart of the American economy. They have created roughly 70 percent of new jobs in the last decade, and are the key to reversing current unemployment trends and getting the nation out of recession. With this in mind, President Obama revealed his $15 billion dollar plan to help small businesses all over the country. Here are the key elements and how your new or existing business can benefit (pay particular attention to the tax breaks):

- The 21 largest banks receiving government money must report monthly (while others receiving taxpayer money need to report quarterly) on how much lending they do to small businesses. A government website will be setup to make this information public, so check how your bank is doing. If they are proving difficult in providing loans, switch to one that is more accommodating. The data will give you the information you need to shop around most effectively.

- Immediately reduce small-business lending fees and to increase government guarantees on some SBA loans. The Small Business Administration (SBA) currently guarantees payment on 85 percent of a loan up to $150,000, and as much as 75 percent on loans of more than $150,000. The administration is raising the guarantee to 90 percent, reducing lender risk, and waiving fees of as much as $75,000 that are paid by borrowers. This will be funded via $730 million from the recently passed stimulus plan.

- The government will take aggressive steps to boost bank liquidity with up to $15 billion aimed at unfreezing the secondary credit market – this is where most commercial and small business loans are made. Where needed the government will step in to buy small business loans to help unlock the frozen credit market.

- Small business owners will be able to borrow as much as $2 million with enhanced government assurances. Companies in need of financing for big economic development projects will have a guarantee on as much as $4 million in loans, under the plan.

- The IRS has also issued a series of new rules for temporary but significant tax breaks, meaning that small businesses:

That earn up to an average of $15 million (qualifying limit) in gross receipts annually over a three-year period will be allowed to claim losses for the past five years in the current tax year. This limit prevents larger business’ from claiming this tax exemption. It also means many firms should get refunds now, rather than have to wait to deduct 2008 losses from future profits after the economy recovers. But firms must decide whether to use the five-year carry back provision and which year it applies to by April 17.

May write off up to $250,000 in investments this year.

Will see 75 percent of capital gains excluded for those who invest in small businesses.

Can reduce estimated tax payments to 90 percent of the previous year’s filing.

Are allowed to take larger depreciation deductions within the first year of property purchases.

Overall, these measures should provide a boost but $15 billion seems a small amount, especially when compared to the $700 billion stimulus and TARP plans. However, as a small business owner the key benefits will come from the tax changes. Make sure you discuss these with your accountant at your next meeting and plan to take advantage of the new provisions.

Sources : Yahoo/AP, Bloomberg ,

Related:
- $800/$400 Working Tax Credit
-
$8,000 First and New Home Buyer Tax Credit
-
Key Dates to Receive the Economic Stimulus Payments

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{ 15 comments… read them below or add one }

J. Ryan July 23, 2012 at 8:05 pm

It is not just loans, it is tax credits, which can be very useful to a small business owner. Fact is President Obama has provided more tax breaks, for the middle class business owner than any other president in recent history. He has passed 18 bills to help small business’s.

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Alice Enix February 11, 2011 at 10:54 pm

Why would any business want a LOAN, at all. Why take risk? Have debt? or trust US economy will get better? American’s are no longer encouraged to build wealth, build profits or even work. If I’m listening to Obama, then, non-profit organization are the only honorable work and deserve grant money. Decide on a comfortable salary and become a non-profit. Capitalism is not supported by Obama or our government, any longer. Americans are going to have to adjust to lifestyles that are close to poverty and only the tax-payer supported, high class groups (ruling class) and subsidized industries are the only winners. If you don’t have the cash, DO NOT APPLY FOR A LOAN. This is not a well informed decision. At this time in history. My view. Sincerely

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Carolyn January 16, 2011 at 1:57 am

There is so many Democrats blinded by what is happening with Business getting credit for hiring unemployed and even better yet- Employers having less than 50 full time employees and offering health insurance and be able to write it off! Hospitals for example: many nurses, administrative have been begging for full time employment to survive. The Big “non-profit” companies refuse to hire full time. The best kept secret: hire part-time, offer health insurance and write-off all these part time employees with new “small business credit” Thus using agencies or casual employees or allready employed in other areas but with payroll coding appears as hiring on. The big health insurance companies and hospitals should not be able to write off health insurance as they allready have provider discounts as the employees are paying high insurance premiums, co-ins and co payments. The amounts that the companies pay towards each employee is added in gross wages so yeah, to make it simple to comprehend: Employees working less hours than they would like stay for insurance purposes and Executives and Supervisors work full time, have restrictions who works full time, overtime so they can use as a write-off!
Hello, Obama has sincere trust and is genuine and Republics don’t want to be told what to do, Government needs to quit giving healthcare insurance companies, hospitals write-offs because the profit is not going to the ones who do the care- We would be better off having government or City run as middle class is uninformed and we would see change if companies would have restrictions. We are Obama care now- Government payingf for part-time low-income employees (called: MN Care in Minnesota or medicaid state aide) and Business makes sure they hire under 50 full time- write off huge dollars! Ask Bill O’reilly or Glenn Beck that question? We wonder why were in a crisis and government spending out of control- rich getting richer. Obama Care is allready here and bless his heart but president needs to get more involved and get the facts from the middle/low income workers and real small businesses.

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Steven A. November 23, 2010 at 9:14 pm

Everyone in this forum has WAY too much time on their hands. Get a JOB! This article sheds a lot of light on the good of OBAMA!

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Small Business Tax Professional November 20, 2010 at 3:06 pm

I hope we actually see all these tax credits, better lending programs and tax breaks actually come to pass. Many times these programs have so many qualifications that nobody is able to use them. (Nobody that’s being honest, anyway.) If these programs are really designed to help small business owners, they need to be more lenient in their requirements.

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Chandresh Shah October 28, 2010 at 2:48 pm

A small business buys software worth $30,000. What are the real financial benefits in terms of tax treatment, depreciation…

Maybe a real-world example?

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Small Business Tax Professional November 20, 2010 at 3:10 pm

You can write off the whole $30,000 on your taxes. It’s a $30,000 deduction for your company. You don’t necessarily have to depreciate software anymore (it’s an option depending on what would benefit you more), you can take the whole amount at once.

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william j. simmons sr. October 24, 2010 at 4:54 pm

this comment is in response to all the information i read about the 2010 small business job bill (h.r. 5297) i learned long time ago that people fail not programs, the programs mentioned above will work for the good of all if followed as outlined. i think the program is a GOD send for those who have vision.
it is outlining our path to get out the recession and move on to bigger and better things. as the good book (bible) states that for like of vision you will perish, i see great visions here and to put it short and brief this lemon is ready to be turned into lemonade.

sincerely,
william j. simmons sr.
leesburg georgia

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Marcus N September 27, 2010 at 10:02 pm

Actually the deloitte report explains bonus depreciation quite well where under the bonus depreciation provision, 50 percent of the basis of qualified property may be deducted in the year the property is placed in service and the remaining 50 percent recovered under normal depreciation rules. Generally, qualified property includes:
• Property with a MACRS recovery period of 20 years or less;
• Water utility property;
• Certain computer software; and
• Qualified leasehold improvement property
As a result of this extension, bonus depreciation is generally available for qualified property the original use of which commences with the taxpayer and is placed in service during 2008, 2009, or 2010 (2011 in the case of certain property with longer production periods). The Joint Committee on Taxation (JCT) staff estimates the provision will cost $5.45 billion over 10 years.

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melissa September 27, 2010 at 6:20 pm

Thank God! This president is at least trying to do something for people that are less fortunate. yeah all you idiots that say your blaming everything on this president, look again, he is fixing the problem the republicans caused. Make them pay their taxes, I dont think all the rich people should pay taxes to help give tax breaks to poor. My vote is with this president that does at least care about the poor and the small business owners. Thank God for president Obama and the Democratic party!!!! God does not like greedy republicans that cause children to go hungry!!!

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Raj September 27, 2010 at 9:54 am

I was reading the news re. Obama’s Small Business Accelerated Depreciation…100% Expensing of Capital Items

Anyway if you were planning to do a blog on it, you can compare to Australia’s experience

I honestly believe one of the major factors that kept Australia out of recession was the “Investment Tax Break”.
Australian Businesses still claimed normal depreciation on any depreciable asset
However Smalll Businesses got a 50% bonus deduction (on top of normal depreciation) on any asset over $1000
Larger Businesses (turnover over $2mil) got a bonus deduction of 30% (on top of normal depreciation) for anything over $10,000

From my experience it got a lot of businesses to bring forward capital expenditure,
Thereby stimulating the economy AND improving long term productivity

From my understanding – I think the Obama version is flawed, as there is no major incentive to bring forward investment
Yes you get tax deduction straight away – But chances are small businesses are in loss anyway
So by the time they get their tax benefit, it is the same as writing off the asset slowly

Over here it was a BONUS on top of depreciation…. and many businesses came to the opinion that even though the economy was uncertain the bonus deduction made bringing forward capital expenditure planned for 1/2/3 years down the track was worthwhile…

Anyway my two cents

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Andrew September 27, 2010 at 9:53 am

Bonus Depreciation – Love it! By allowing a 100% deduction of capital investments, businesses of all sizes will be allowed to keep more money now and would give large corporations, many of which are sitting on cash due to uncertainty about the economy, an incentive to spend and invest; thereby creating new jobs. This measure would cost an estimated $200 billion in revenues though the ultimate net loss would be $30 billion over 10 years, since businesses would eventually deduct the depreciated value of the equipment in any case.

PS: I am a corporate accountant for a mid-size manufacturer and this measure alone will allow me to add 10 new jobs next year to hire staff for the new equipment we purchase.

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Gail September 25, 2010 at 3:21 pm

Some updates:

* Bonus Depreciation is just an extension of 2008 and 2009 rules. So not that much new here.

* Capital Gains Exemption is the only real increase since purchases are 100 percent exempt from capital gains tax in future years, an increase from existing 50 percent exemption.

* Small-business owners will be allowed to deduct the costs of health insurance for themselves AND family members from their self-employment taxes. Tax credits for small businesses under 25 employees to purchase health insurance for their employees were already made law as Obamacare

* Cell Phone Deduction: Employers can now deduct the cost of employee cell phones as a business expense by reducing burdensome record keeping requirements. So more blackberries for all.

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Eric September 24, 2010 at 4:21 pm

Let’s define the small businesses that really need help, that really represent the most existing and new job creation, and that this program won’t likely help. Those with 50 or fewer employees. The way to get these business what they need is for people to support them. Buy their products. Buy their services. Consider Peer-to-Business (P2B) lending.

Quit waiting for the government or Wall Street to help them out. They just don’t understand how, want to or really care.

It’s the “Bottom 95%” of income earners who are represented by this group of business. Either because they own a small business or support them.

Time has come for this group to gather as a community and as a community become self reliant.

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Dameian September 24, 2010 at 3:57 pm

Why do businesses want to borrow and then have to pay back 3 times the amount in interest rates, and borrowing to buy new equipment does not mean that there will be an increase for new employees; it just means that the business entity will have new equipment, and the banks will earn more interest–an administration that benefit’s the monetary policy instead of a policy that benefit’s the people with disposable income. The only clause that really sounds good to me is not having to pay the FICA tax that self-employed business owners have to pay twice in the form of an employee and the matched employer tax obligation.

As for the tax credit that is given for hiring the disadvantaged, that option to receive the tax credits should be explored more closely. Businesses that hire disadvantaged people include staffing agencies that put peoples’ names on the hired list, but they never call that person to go on an assignment to receive earnings as an employee of the staffing agency be it temporary or “could lead to permanent employment.” There should be more requirements before the employer gets the tax credit. For example, the employer must have in their employ the disadvantaged person for a minimum of 2 years before receiving the tax credit, and then the wages must be equal to an amount above a specified dollar amount to receive the tax credit, and the tax credit will be made retroactive. Once the staffing agency employer or full time employer can receive the tax credit for the disadvantaged employee, it doesn’t mean that the employee has a life-time job or a job that will enable home ownership, college tuition for their children, or a lesser need for entitlements

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