The Small Business Jobs Act of 2010, signed into law by President Obama in late September, is designed to tackle America’s continuing high unemployment rate by bolstering that sector of the American economy that has traditionally been responsible for the creation of the most American jobs: the small business sector. Small businesses, defined by the Small Business Administration (SBA) as any commercial concern with fewer than 500 employees, employs slightly over half of all private sector employees and over the past 15 years have generated close to 65% of all new jobs.
It’s no secret that the recent economic downturn has hit business where it hurts. Even in prosperous times, business formation is a risky endeavor: over half of all small businesses fail within the first year, in part because their owners have incomplete knowledge of the business law and tax code necessary to guide them through a business start. In 2008, the first year of the recession, almost as many of these businesses closed as were started, and many of those businesses had been in operation over ten years.
We hope the Act helps. Some of the small business tax cuts in the Act are:
S Corp. Holding Period for Built-in Gains. When a C corporation converts to S corporation status, the corporate-level built-in gains tax generally applies when built-in gain assets (including receivables and inventories) are turned into cash or sold within the recognition period. The recognition period is normally the 10-year period that begins on the conversion date. For tax years beginning in 2011, the new law exempts gains from the built-in gains tax if the 5th year of recognition period has gone by before the start of the 2011 tax year. Therefore, deferring asset sales that would generate built-in gains until 2011 is something to consider.
Deductibility of Health Insurance Costs From Self-Employment Income. Self employed individuals will be able to reduce self-employment income for the cost of health insurance for themselves and family in computing their self-employment tax, but only for their first taxable year beginning after December 31, 2009.
Increase Deduction for Start-up Expenditures. The amount deductible for 2010 as start-up expenditures is increased to $10,000 subject to a $60,000 phase-out threshold.
Removal of Cellular Phones From ‘Listed Property’. Cell phones will no longer be subject to the strict substantiation requirements for depreciation. And cell phones and other similar devises provided to an employee for business use will be excludible from gross income.
Provisions to Provide Loans to Small Businesses. The centerpiece of the bill is the creation of $30 billion lending facility that would direct taxpayer money to regional banks on the condition they lend it out to small businesses. Unlike the emergency financial rescue package implemented at the height of the crisis in 2008, banks would have to volunteer to participate in this
program.
The Act includes numerous tax breaks aimed at small businesses and a number of provisions designed to give small businesses access to credit. Most of the tax breaks are short lived and many may expire before small businesses can fully take advantage of them.
If you are a small business owner, take advantage of our free 1 hour consultation and come in to discuss how these new tax changes can benefit you. Just give our office a call to set up an appointment.
