Regional administrator, U.S. Small Business Administration
After the Recovery Act passed in February 2009, the Small Business Administration was able to help about 70,000 small businesses get our recovery loans to help keep doors open, shelves stocked and employees paid.
It was a good investment. We leveraged a $680 million taxpayer investment into more than $30 billion lending to small businesses across American and here in our community.
Additionally, more than 1,300 banks and credit unions started making SBA loans again. This provided more points of access to capital in King County at a critical time.
However, entrepreneurs needed additional tools to help keep our economic recovery on track. The recent passage of the Small Business Jobs Act (SBJA), and the expanded $30 billion in lending support, provides $12 billion in tax incentives intended to spur lending and get small businesses back on their feet.
Specifically, eight tax cuts are targeted to small business owners so that they can focus more on investing in their business and creating jobs. The cuts include:
1. 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 SBJA temporarily puts in place, for the rest of 2010, a provision to eliminate all capital gains taxes on these investments if held for five years.
2. 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.
3. Extension of 50 percent bonus depreciation. The bill extends a Recovery Act provision for 50 percent “bonus depreciation” through 2010.
4. A new deduction of health insurance costs for the self-employed. The self-employed can deduct 100 percent of the cost of health insurance for themselves and their family members in calculating their self-employment taxes.
5. Tax relief and simplification for cell phone deductions. The bill changes rules so that the use of cell phones can be deducted without extra documentation.
6. 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.
7. A five-year carry back of general business credits. The bill would allow certain small businesses to “carry back” their general business credits to offset five years of taxes while also allowing these credits to offset the Alternative Minimum Tax, reducing taxes for these small businesses.
8. Limitations on penalties for errors in tax reporting that disproportionately affect small business. The bill would change the penalty for failing to report certain tax transactions from a fixed dollar amount to a percentage of the tax benefits from the transaction. The fixed dollar amount was criticized for imposing a disproportionately large penalty on small businesses in certain circumstances.
