New Tax Laws Impact Small Businesses

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BusOn May 13, 2010, President Barack Obama described small businesses as “the backbone of America’s economy.”  The President was in Buffalo, New York speaking to members of Industrial Support Inc. The Small Business Jobs Act is a step that the nation has taken in the hopes of strengthening the nation’s economic backbone.

Small Business Jobs Act Highlights

The Small Business Jobs Act passed in the Senate on September 16, 2010. The $42 billion bill is expected to create as many as half a million jobs. The bill passed in the Senate on a vote of 61 to 38. Stimulating hiring among small business owners is one of the reasons the bill was passed by such a large margin.  Late in September, the bill passed the House. President Barack Obama signed it into law on September 27, 2010. 

Components of the bill
•    $30 billion for the small business lending fund
•    Extension of the Small Business Administration (SBA) 90% guarantee
•    Increase in SBA Express Loans taking them from $350,000 to $1 million
•    Higher limits set for 7(a) and 504 loans (e.g. businesses that need financing to purchase equipment, machinery or purchase or perform land improvements, export businesses)

Small Business Tax Incentives
In addition to stimulating hiring at small businesses, the bill also aims to provide tax breaks and incentives to small business owners. Even before the bill passed the Senate, unrelated changes to existing tax laws were enacted. Some of these tax changes that will impact small business owners are:

•    5-Year carry-back of 2008 and 2009 Net Operating Losses (election can only be made for one tax year)
•    Small Business Health Care Tax Credit (targeted for businesses with low or moderate income employees)
•    Flexible Spending Accounts (cost of over-the-counter drugs can only be reimbursed from flexible spending or health reimbursement arrangements if the drug is prescribed, rule takes effect January 1, 2011)
•    Alternative Fuel Vehicle Refueling Property Credit (Hydrogen related property credits increased to $200,000 per location)
•    Cancellation of Debt (according to the Internal Revenue Service, “Certain businesses can make an irrevocable election to delay recognition income from the cancellation of business debt arising from the reacquisition of certain types of business debt repurchased in 2009 or 2010.”)

Home Office Deductions
Self-employed workers and small business owners can also continue to take advantage of an existing tax law: the home office deduction. In order to take this deduction, a portion of your home (e.g. apartment, single family) must be used exclusively and regularly for:

•    Principal place of business
•    Where you meet with clients, business partners or clients
•    In connection with trade or business where your home office is located in a structure that is separate or unattached your home

More information on the Internal Revenue Service (IRS) small business tax law changes can be found at the IRS official Web site under “Businesses.”  Additional information regarding 7(a) and 504 loans is provided at the SBA Web site under “Services.”