By WebCPA Staff
President Obama signed the Small Business Jobs Act into law on Monday, providing $12 billion in tax breaks and a $30 billion lending fund for small businesses.
"It was critical that we cut taxes and make more loans available to entrepreneurs," said Obama. "So today, after a long and tough fight, I am signing a small business jobs bill that does exactly that."
The bill eliminates all capital gains taxes on small business investments held more than five years. Over 1 million small businesses are eligible this year for investments that, if held for five years or longer, could be completely excluded from any capital gains taxation.
In addition, the bill increases for 2010 and 2011 the amount of investments that businesses would be eligible to immediately write off to $500,000, while raising the level of investments at which the write-off phases out to $2 million. Prior to the passage of the bill, the expensing limit would have been $250,000 this year, and only $25,000 next year. An estimated 4.5 million small businesses and individuals will be able to make new business investments under this provision and earn a larger break on their taxes for this year, according to the White House.
The bill also extends a Recovery Act provision for 50 percent “bonus depreciation” through 2010, providing 2 million businesses, large and small, with the ability to make new investments and know they can receive a tax cut for this year by accelerating the rate at which they deduct capital expenditures.
The bill also allows 2 million self-employed to get a deduction for the cost of health insurance for themselves and their family members in calculating their self-employment taxes for this year. This provision is estimated to provide over $1.9 billion in tax cuts for entrepreneurs.
The Small Business Jobs Act also changes rules so that the use of cell phones can be deducted without burdensome extra documentation.
The bill temporarily increases the amount of start-up expenditures that entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures), offering an immediate incentive for someone with a new business idea to invest in starting up a new small business today.
In addition, the bill would allow certain small businesses to "carry back" their general business credits to offset five years of taxes, providing them with a break on their taxes for this year – while also allowing these credits to offset the Alternative Minimum Tax, reducing taxes for these small businesses.
The bill would change, beginning this year, the penalty for failing to report certain tax transactions from a fixed dollar amount – which was criticized for imposing a disproportionately large penalty on small businesses in certain circumstances – to a percentage of the tax benefits from the transaction.
With funds provided in the bill, the Small Business Administration will begin funding new Recovery loans within a few days of President Obama’s signature, starting with the more than 1,400 businesses – with loans totaling more than $730 million – that are waiting in the SBA’s Recovery Loan Queue. In total, the extension of these provisions is expected to provide the capacity to support an estimated $14 billion in loans to small businesses.
The bill also increases the maximum loan size for SBA loan programs, which in the coming weeks will allow more small businesses to access more credit to allow them to expand and create new jobs. The bill will permanently raise the maximum size for the SBA’s two largest loan programs, increasing the maximum 7(a) and 504 loans from $2 million to $5 million, and the maximum 504 manufacturing related loan from $4 million to $5.5 million. In addition, it will temporarily increase the maximum loan size for SBA Express loans from $350,000 to $1 million, providing greater access to working capital loans that small businesses use to purchase new inventory and take on their next order – allowing them to create new jobs.
The bill would establish a new $30 billion Small Business Lending Fund which – by providing capital to small banks with incentives to increase small business lending – could support several multiples of that amount in new credit.
In addition, the bill will support at least $15 billion in small business lending through a new State Small Business Credit Initiative, strengthening state small business programs that leverage private-sector lenders to extend additional credit – many of which have been forced to cut back due to budget cuts.
For more information, read http://tax.cchgroup.com/legislation/Small-Business-Jobs-Act-7-23-10.pdf