More Stimulus Tax Breaks and Hiring Credits in Obama's 2010 Small Business Recovery Plan
[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: 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. 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.- 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:
May write off up to $250,000 in investments this year.
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.
Will see 75 percent of capital gains excluded for those who invest in small businesses.
Sources : Yahoo/AP, Bloomberg
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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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March 17, 2009 9:27 PM
Proof that Obama is now a republican dressed as a democrat : The new policy will exempt investments in small businesses or, as President Obama stated, the sale of stock in small businesses from capital gains taxes. This will offer little or no benefit for small business owners while saving venture capitalists billions of dollars in taxes. The new pro-venture capital policies will be devastating for the nation's 27 million legitimate small businesses, as wealthy investors will be allowed to completely dominate federal small business contracting programs.
March 18, 2009 1:45 PM
I don't see how making banks tell the government how much they're lending is doing anything but generate more paperwork for the banks
March 18, 2009 1:46 PM
Great cut our taxes when we are losing money and increase our personal tax rates because we apparently make too much. I don't know which world I am living in now.
March 18, 2009 2:22 PM
Thanks for all the feedback. I have recieved a surprisingly large number of comments off line on this artilce. The good news is that the IRS has issued more information on the tax changes:via updating the instructions for Form 1045 and Form 1139, which small businesses will use to take advantage of the carryback provision. (see irs.gov for details).
Some IRS FAQ's that I found useful :
Q1: Do I have to carry back my net operating loss (NOL) for the full five year period?
A: No. You can elect to carryback the loss for any number of years from three to five, but remember that this is an irrevocable election.
Q2: Can I waive the carryback period and instead carry the full loss forward for the next 20 years?
A: Yes. You can waive the carryback period and instead carry the full loss forward for the next 20 years, but remember that this is an irrevocable election.
Q3: If my business operates on a fiscal year that ended in the middle of 2008, which year do I use?
A: You may elect for either 2008 or 2009, but not both. Whichever you choose, remember that this is an irrevocable election, and can be made for only one tax year.
Q4: Can you explain what an irrevocable election is?
A: Basically, it means that once you select how you are going to handle your NOL, whether to carry back a certain number of years or to only carry forward the losses, then you may not change this selection.
Q5: I had slightly more than $15 million in gross receipts last year, am I eligible for the five-year carryback?
A: It depends. To qualify for this particular 5-year carryback election the law says that the business must have an AVERAGE of less than $15 million in gross receipts over a three-year period ending with the year giving rise to the loss. If your business gross receipts average more than $15 million over the three-year period, the normal two-year carryback applies.
Q6: I filed my 2008 return already, but now, in light of the new law, I want to amend it, can I do this?
A: If the 2008 return has already been filed, you may still make the election by the later of – (A) six months after the due date of the return (determined without extensions), or (B) April 17, 2009. If you previously elected on that return to waive the normal 2-year NOL carryback, you may revoke that election in order to elect the 3 to 5-year carryback, provided you make your revocation and new election on or before April 17, 2009.
Q7: Can I use this for a 2009 return?
A: The law specifically states that the election is available for the tax year ending in 2008, unless the taxpayer elects this carryback for the tax year beginning in 2008. A calendar year taxpayer can elect only for 2008. A fiscal-year taxpayer whose year ends in 2008 can elect either for its fiscal year ending in 2008 or its fiscal year beginning in 2008 and ending in 2009, but not both.
Q8: When is the deadline for taking advantage of this NOL provision?
A: For a taxpayer who already has filed a return for the year of the loss for which the taxpayer wants to elect the special 2008 NOL carryback, see Q&A #6. If a taxpayer has not filed a return for the year of the loss, the taxpayer has until the later of – (A) the due date (with extensions) of the return for the year of the loss, or (B) April 17, 2009. The law will not allow for any extension of this deadline. After the later of these dates, you will have to use the current law provision of a two-year carryback.
Q9: How long will this law be in effect?
A: The law is in effect for a taxpayer's NOL for any taxable year ending in 2008, or if elected by the taxpayer, the NOL for any taxable year beginning in 2008. However, any election under this provision may be made only with respect to one taxable year.
Q10: Are there any exceptions for which the IRS will accept an election after the due dates described in Q&A #8?
A: Generally no. However, if the taxpayer has timely filed its return without making the election, an automatic six-month extension from the return due date (excluding extensions) is available.
Q11: Assuming the taxpayer makes an election for the tax period ending January 2008, may the taxpayer make the election for the tax period ending January 2009?
A: No, a taxpayer may make the election for only one tax year, either beginning or ending in 2008.
Q12: If the taxpayer makes an unallowable second election on a tentative carryback what will happen?
A: If the taxpayer makes an unallowable second election on a tentative carryback claim (Form 1139), a letter with specific language will be used to reject the claim.
Q13: What else should the taxpayer do when it makes the election?
A: The taxpayer should attach a statement to the return saying that the taxpayer is electing to apply section 172(b)(1)(H), the length of the carryback period elected (3, 4, or 5 years), and, if applicable, that the election is for the taxpayer’s tax year that begins in 2008.
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The above should answer most questions. You should definetly discuss this with your accountant because effective tax planning could save you a lot of money and more importantly, boost your cash flow.
March 31, 2009 1:35 AM
One of the reasons why I like this plan of Obama to help out small businesses is not only because it can boost the economy--the fact that the reports and boost of bank liquidity is are main focuses goes to show that the intent of the program is clear. I hope it'll be successful.
January 15, 2010 9:13 PM
Why is it that we have to go in debt before we get incentives?
February 8, 2010 12:03 PM
This is a general "reward" to small businesses, and it will not work with everyone.
First, no business owner in their right mind is going to hire when their forecasts don't justify or even financially support the expense. A business cannot hire people if they aren't making money - common sense.
Second, it will depend upon the positions that will need to be filled. If a business decides to focus on sales and marketing (to increase business income) then it would be smart do some hiring. A good and effective sales/mktng dept. will be worth hiring. An overall look at the ROI of such staff would probably show and increase in sales. More money coming in would then spur hiring in other departments as necessary (i.e. production, office staff, shipping/receiving, more vet asst., etc.)
Simply hiring more staff doesn't generate more revenue. Hiring the right staff will generate revenue.
February 8, 2010 12:04 PM
A better fix for the unemployment issue is to enforce our immigrations laws (period), require every employer to use the E-Verify System, impose big fines and prison terms on employers who hire illegals, penalize State and Local Governments who continue to hire contractors who employ illegals to do Government work. This will take back over 8 million jobs from illegal aliens. The $5000 "incentive" for new hires is just another way to throw good money after bad and again it is the tax payer who is left with the debt. No to the $5000 Throw-Away Plan and Require Michelle Obama to refund to the Government the thousands of dollars she is spending for her personal staff. No other first lady in history has gotten away with spending tax payers dollars. The Obamas are not royalty. Obama is an elected Servant of the People. Our political leaders need to be on top of this and required this money returned immediately
February 8, 2010 12:05 PM
Perhaps i am naive but I had always believed that jobs can only be created when there is an increase in demand for goods and/or services. Why would any legitimate business person hire anybody for any reason other than to meet the need for this increased demand? If I have 5 employees that can properly service all my customers then why would I hire a sixth employee to get a $5000 tax credit? We will not begin to see legitimate job growth in this country until people have money in their pockets to spend and confidence that the source of that money is not likely to be taken away anytime soon
February 8, 2010 5:17 PM
There is some good stuff in Obama's recent proposals. Yet, they're not far-reaching enough to help many small business owners. For instance, the $5,000 tax credit for new hires sounds great, but it's just not feasible for many small businesses to add workers in this tough economic environment. So it doesn't really matter how many tax credits President Obama throws around, small business can't afford to hire if sales and profits are bad.
February 9, 2010 11:20 AM
As a small business owner, the new 2010 budget/stimulus payments are going to provide little help to me. Why would I hire someone - even for a $5000 credit - if the future is so uncertain. The hiring credit is about 2-3 months pay. After that do I let the new employee go? The current strategies seem a bit myopic