Small Business Jobs Act of 2010

On September 25, the Small Business Jobs Act of 2010 became law. Here are the provisions you should know about:

Extension of Aggressive SBA Loan Programs

You might be able to reduce debt service burden by refinancing your debt. If you need additional working capital, or need to purchase equipment or fund improvements to your facilities, aggressive-support SBA programs have been extended through year-end and, in some cases, enhanced. You might be surprised at what banks are willing to do with government guarantees standing behind them. Here’s a summary of the SBA elements of the new law:

1. Waiver of up-front fees¹ through December 31, 2010
2. Renewal of 90% guarantees
3. Renewal of the increase in the maximum size loan to $5 million ($5.5 million on 504 loans)
4. Increases of 7(a) “express” working capital loans from $300,000 to $1 million

Call your banker or find an SBA loan-packaging specialist like David Laughrey laughreyco@cox.net.

Renewed Capital Expenditure Incentives

In an effort to get businesses spending money again, the government has rolled out new incentives to buy equipment and make improvements. If you have taxable income and the ability to fund expenditures, here’s your chance to reduce the present value of the taxes you pay on profit.

• Extension and expansion of the Section 179 deduction: Small businesses² may immediately write off 100% of the cost of up to $500,000 of new or used equipment purchased or 50% of leasehold improvement expenditures made in 2010 or 2011. It can be used only to reduce taxable income, i.e., it cannot be used to book a profit and thereby gain a tax refund.
• Bonus depreciation: Businesses of any size can write off half the cost of purchases of new equipment made in 2010 or 2011 even if such causes a net loss.

Unused Tax Losses Can Now Be Carried Back Five Years

Any sole proprietorship, partnership or non-public corporation with $50 million or less in average annual gross receipts for the prior three years can now carry back unused losses for five tax years rather than just one. This means you can use current losses, or unused losses from 2008 or 2009, to offset taxable income reported as far back as 2006. Talk to your accountant about whether you can file amended statements and earn a refund.

Allow Rollovers from Elective Deferral Plans to Roth Designated Accounts

The bill contains language that would allow 401(k) and 403(b) plan participants to roll their account balances into a Roth account. The amount of the rollover would be includible in taxable income except to the extent it is the return of after-tax contributions. If the rollover is made in 2010, the participant can elect to pay the tax in 2011 and 2012.

100% Exclusion from Capital Gains Taxes on Small-Business Investments

An individual who invests in a newly formed C-corporation after September 23, 2010 and holds the stock for more than five years will pay no tax on any gain he or she may realize thereafter, subject to a limit of the greater of 10 times the original investment or $10 million of gain. Additionally, the new legislation shields the taxpayer from AMT treatment on the gain. It is unfortunate that LCC and S-corporation stock appears not to apply.

Employees No Longer Required to Log Personal Calls

Although most employees and employers ignored the rule, employees have been required to log personal calls they make on employer-issued cell phones, and log and report and pay taxes on the benefit. This requirement has been eliminated.

Note: This legislation (The Small Business Jobs Act of 2010) is more than 200 pages of text that is at times a bit difficult to understand. The language is also subject to interpretation by agencies such as the Internal Revenue Service. Little in the way of explanatory guidance has been provided in this article. As such, this summary is a “best effort” attempt to provide a summary of the parts of that are most relevant to owners of small and midsize U.S. companies.

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¹ This is a waiver of the SBA guarantee fee that normally must be paid to the SBA on origination. It’s either 2.5% or 3.5% of the loan amount, depending on the size of the loan. The borrower may still have to pay an up-front fee to the institution that originates the loan.

² We were unable to determine the exact definition of “small.” At the time of this writing, it appears — for most business types — to be 500 or fewer employees or annual revenue below about $10 million, but indications are that these could change.