Tax Tips for Entrepreneurs
Tax Breaks for Business Owners in the Small Business Jobs Act
The Small Business Jobs Act finally passed. That sounds like good news, right? But what's in it for average small business owners and how could it affect your company?
The current recession has had a devastating effect on businesses across the nation. But its impact has been especially hard on small businesses - the backbone of the American economy.
In an effort to improve conditions for the small business community, President Obama signed the Small Business Jobs Act in 2010. But deciphering the benefits small businesses will receive from this piece of legislation is more difficult than it sounds.
The driving force behind the Small Business Jobs Act was a desire to inject more capital into small businesses. The idea was that if the government could increase the amount of capital that was available to small businesses, owners would use that capital to hire more workers.
Whether the legislation had its intended effect or not is debatable. But it intended to accomplish its objective in two ways: (1) By making it easier for small businesses to obtain capital through financing, and (2) through tax cuts designed to target small companies.
The Small Business Jobs Act encouraged additional financing in several ways. An expansion of the 2009 Recovery Act Loan program extended an additional $14 billion in lending. Maximum loan sizes in top end programs increased from $2 million to $5 million, and the caps for microloans increased from $35,000 to $50,000.
The benefit most small business owners will receive from the Small Business Jobs Act is in the area of tax cuts. Section 179 deductions for capital purchases were radically increased through SBJA, up from $250,000 in 2010 and $25,000 in 2011 to $500,000 each year. The advantage is that businesses can reduce their net income by deducting the entire cost of capital purchases in the current year rather than depreciating the cost over time.
Other SBJA tax benefits target common business expenses like cell phone purchases and healthcare premiums. Self-employed individuals can reduce their self-employment income by the amount of their health insurance costs, resulting in a lower SE tax burden. Additionally, cell phones are no longer classified as "listed" property, making it easier for small business owners to obtain and deduct mobile coverage for themselves and their employees.
There are several other tax-related benefits associated with the Small Business Jobs Act. For a complete rundown, visit the Small Business Administration website at www.sba.gov/jobsact.
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