Background on the Small Business Bill Signing Today
Today, President Obama will sign the Small Business Jobs Act, a bill that will give our nation’s small businesses support and incentives to help them grow and hire. The bill includes a series of small business proposals that the President put forth earlier this year, and small businesses will start benefiting from the bill on day one.
- if you are a small business and you buy new equipment, you can immediately write off the first $500,000 of your investments;
- if you are one of over one million eligible small businesses, key long-term investments in your company will be subject to zero capital gains taxes;
- if you are an entrepreneur and take a chance on a new idea, you can deduct the first $10,000 of your start-up costs;
- and if you are self employed you can deduct 100 percent of the cost of health insurance for you and your family from your self-employment taxes.
- Zero Taxes on Capital Gains from Key Small Business Investments: Under the Recovery Act, 75 percent of capital gains on key small business investments this year were excluded from taxes. The Small Business Jobs Act temporarily puts in place for the rest of 2010 a provision called for by the President – elimination of all capital gains taxes on these investments if held for five years. Over one million small businesses are eligible to receive investments this year that, if held for five years or longer, could be completely excluded from any capital gains taxation.
- Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments: 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. This provision means that 4.5 million small businesses and individuals will be able to make new business investments today and know that they will earn a larger break on their taxes for this year.
- Extension of 50% Bonus Depreciation: The bill extends – as the President proposed in his budget – 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 today and know they can receive a tax cut for this year by accelerating the rate at which they deduct capital expenditures.
- A New Deduction of Health Insurance Costs for Self-Employed: The bill allows 2 million self-employed to know that on their taxes for this year, they can get a deduction for the cost of health insurance for themselves and their family members in calculating their self-employment taxes. This provision is estimated to provide over $1.9 billion in tax cuts for these entrepreneurs.
- Tax Relief and Simplification for Cell Phone Deductions: The bill changes rules so that the use of cell phones can be deducted without burdensome extra documentation – making it easier for virtually every small business in America to receive deductions that they are entitled to, beginning on their taxes for this year.
- An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses: The bill temporarily increases the amount of start-up expenditures 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.
- A Five-Year Carryback Of General Business Credits: 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.
- Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business: 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.
- In Total, Extension of Provisions Which Have the Capacity to Support $14 Billion in Loans to Small Businesses: Extending these Recovery loan enhancements – which increase guarantees for SBA’s largest loan program (the 7(a) program) to 90% and reduce fees for the 7(a) and 504 program – has the capacity to support $14 billion in lending to small businesses. Already, SBA Recovery loan provisions have supported $30 billion in lending to over 70,000 small businesses.
Within Coming Weeks, the Bill Will Allow SBA to Support Larger Loans As Well: 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 enable them to expand and create new jobs. The bill:
- Permanently raises the maximum loan size for the SBA’s two largest loan programs, increasing maximum 7(a) and 504 loan size from $2 million to $5 million and the maximum 504 manufacturing related loan size from $4 million to $5.5 million.
- Permanently raises the maximum loan size for SBA microloans, increasing it from $35,000 to $50,000 and strengthening a critical tool for entrepreneurs and business owners in underserved markets to access start-up capital.
- Temporarily raises 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.
Treasury Is Working to Quickly Implement the Small Business Lending Fund and State Small Business Credit Initiative: In addition to these SBA provisions, Treasury is working to quickly implement two new programs designed to support private-sector lending to credit-worthy small businesses, and expects to release further details in the coming weeks concerning applications for these programs.
- The Small Business Lending Fund would make available $30 billion in capital to small banks with incentives to increase small business lending, potentially supporting several multiples of that amount in new credit.
- The State Small Business Credit Initiative will support at least $15 billion in new lending by strengthening state small business programs – many of them facing budget cuts – that leverage private-sector lenders to extend additional credit.