Small Business Law Creates Tax Breaks and “TARP 2” Lending
This week, President Obama signed the Small Business Jobs Act of 2010. The law contains $12 billion of tax decreases & increases, and creates a $30 billion Small Business Lending Fund that allows the Treasury Department to make capital investments in smaller banks.
President Obama signed the Small Business Jobs Act of 2010 (H.R. 5297) on September 27, 2010. The law contains the following major provisions that collectively are worth more than $12 billion in tax relief:
1. Removes the heightened substantiation requirements and special depreciation rules for employer-provided cell phones under IRC §280A; currently, employers are denied a deduction for “listed property” such as cell phones unless business purpose and use are documented; employees must continue to include the value of any personal usage of their cell phone in income
2. Allows a self-employment income deduction for 2010 health care expenses
3. Provides a retroactive 2010 (one year only) 50% bonus depreciation available under IRC §168(k)
4. Increases the §179 expensing limit to $500,000 for 2010 and 2011, and increases the phase-out threshold to $2 million for 2010 and 2011
5. Increases the §195 start-up business expensing limit and phase-out from $5,000 and $50,000 to $10,000 and $60,000 respectively in 2010 and 2011
6. Changes the carryback period for eligible small business credits under IRC §38 from one to five years. This affects the 2010 general business credits of sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts over the prior three years. Makes this item exempt from the alternative minimum tax (AMT), so that certain small business owners will actually benefit from the credits. Examples of business credits include the Employer Provided Child Care Credit and the Research and Development Tax Credit.
7. Excuses an S corporation from the § 1374 built-in gain tax in 2011
8. Limits the penalty for failure to report a listed transaction to 75% of the tax benefit, subject to a (i) Corporate maximum of $200,000 and minimum of $10,000, and (ii) Individual maximum of $100,000 and minimum of $5,000
9. Amends IRC § 1202 to increase the exclusion from gross income of gain from the sale of qualified small business stock from 50% to 100% for stock acquired after the date of enactment and before December 31, 2011.
Several revenue raising tax provisions are used to pay for the bill, the most important of which are:
1. Allows 401(k), 403(b) and governmental 457(b) rollovers into Roth accounts within the plan
2. Allows Roth contributions to governmental 457(b) plans after 2010
3. Expands 1099 reporting to require renters of real estate to report payments over $600 after 2010
4. Increases penalties for failure to file informational returns
The law creates a $30 billion Small Business Lending Fund that allows the Treasury Department to make capital investments of up to 3% of risk-weighted assets in banks that have assets under $10 billion. The government investments occur on the condition the banks receiving this money make loans to small businesses, and meet other requirements.
Additionally, the Small Business Administration (SBA) receives increased authorization for lending, including the following:
1. For dealers and manufacturers, the legislation will extend the life of the SBA's Dealer Floor Plan Program (SBA DFP) to 2013. This program provides credit for certain retail goods for resale under an existing stimulus provision set to expire this month.
2. Lending caps are raised from $2 million to $5 million if the loan proceeds will be used for specified public policy goals. Most of these loans are directed to energy production or conservation.
3. Certain SBA loans fees are waived or reduced.
4. Other SBA lending limits under certain programs are increased.
The law includes a number of smaller programs involving small business lending and encouragement. The amounts involved are too insignificant to have any meaningful impact to the economy as a whole. These provisions appear intended as either window dressing for political bragging or gifts to special interests. Additional provisions involve training for small businesses for items such as export assistance.
Most small businessmen would suggest that what they would really like is a more simplified tax code, and certainty over future tax rates. This new law provides neither of these wishes.
ABOUT THE AUTHOR: David Nolte
Mr. Nolte has 30 years experience in financial and economic consulting. He has served as an expert witness in over 100 trials. He has also regularly served as an arbitrator. Mr. Nolte has achieved the following credentials: CPA, MBA, CMA and ASA.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.