By Rhonda Abrams
October 1, 2010
After fighting all summer, Congress and President Obama did the right thing and passed the Small Business Jobs and Credit Act. The biggest provision -- a $30 billion loan -- gets the most attention, but there's actually a lot that can help you. Yes -- I mean you-- if you run a small business or are self-employed. Just be sure to check with your accountant.
What are the key provisions and what do they mean for you?
1. Sole proprietors can write off health insurance premiums as business expenses in 2010.
What it means for you: If you're a sole proprietor, and you pay for health insurance, this year, you'll save an average of $456 to $968 on self-employment tax (according to the National Association for the Self-Employed). Let's say Rebecca is a self-employed marketing consultant who pays $8,000 a year on health insurance premiums for herself and her family. Currently, she pays 15.3% self-employment tax on that $8,000 before she can deduct it from her income taxes. In 2010, she'll save $1224. But the law lapses after one year. Make this permanent!
2. $30 billion fund for community banks to increase lending to small companies.
What it means for you: Nothing if you're not looking for a loan or can't qualify. However, if you've got a healthy business and are looking for a bank loan, the fund is intended to get your neighborhood bank lending. My banker told me many small businesses had stopped applying for loans because they've heard the word "no" from banks, like theirs, that had stopped lending. If you're one of those, and have a healthy balance sheet, try again in another month or two, and shop around for a willing bank.
3. No fees on SBA loans and increasing SBA guarantee to 90% (from 75%).
What it means for you: SBA loans will be somewhat cheaper and, hopefully, easier to get. Since the government now guarantees 90% of the loan's value, banks have less risk. Qualifying for an SBA loan is somewhat easier than getting a regular bank loan, but your business has to be fairly healthy, your business plan sound, and your bank willing to do SBA loans.
4. Substantial increases in SBA loan amounts:
• Typical SBA 7(a) loans: increase from $2 million to $5 million.
• Low document SBA Express loans: increase from $300,000 to $1 million
• Real estate SBA 504 loans: increase from $1.5 million to $5 million.
• Microloans: increase from $35,000 to $50,000.
What it means for you: Primarily, these provisions will help medium-size businesses and larger small businesses, as they'll have access to bigger loans under the SBA loan program, rather than having to get traditional bank loans. In fact, some worry these provisions will make less SBA money available to smaller businesses as banks focus on bigger - easier to service and more lucrative -- loans. However, the expanded SBA Express and microloan program may help smaller companies.
5. Zero capital gains taxes on investment in small businesses
What it means for you: If you're looking for investors in your business, this could be a BIG selling point, because individuals who acquire stock in small businesses after the enactment date of this Act pay NO capital gains if they hold the stock for more than five years. However, it only applies to C corporations and stock has to be acquired by January 1, 2011 -- so act fast.
6. Doubling the write-off of start-up expenses from $5,000 to $10,000 in 2010.
What it means for you: An additional $5,000 deduction for new businesses. Currently, if you spend $30,000 to start your business, you can only take $5,000 as a business expense this year, and you've got to deduct the rest of the costs over a number of other years. This has always seemed like a miserly, senseless way to treat start-up expenses and should be permanently changed.
7. Increase the write-off of certain investments from $250,000 to $500,000 in 2010 and 2011 and allow "expensing" of some real estate improvements.
What it means for you: Midsize businesses, more than small companies, are likely to benefit if they're buying a lot of new equipment or software - more than $250,000 worth. Another beneficiary: restaurants and retailers making property improvements. This allows them to use the Section "179" expensing rules.
On the other hand -- and this will be a big pain -- the Act now requires you to report all purchases of more than $600 with a 1099 form. There's a move to repeal this provision. Let's hope so!
Rhonda Abrams is president of The Planning Shop, publisher of books for entrepreneurs. Her newest book is Hire Your First Employee: the entrepreneur's guide to finding, choosing, and leading great people. Register for Rhonda's free business tips at www.PlanningShop.com. Twitter: twitter.com/RhondaAbrams. Copyright Rhonda Abrams 2010.