What's In It For Me?
Getting the most out of the Small Business Jobs Act of 2010
By Julie Bennett
"The most significant step on behalf of our small businesses in more than a decade."
That's how President Obama characterized the Small Business Jobs Act when he signed it into law in September. Its broad package of tax cuts and loan opportunities to entrepreneurs--all aimed at growing the economy--gives muscle to his rhetoric. But because of the deadlines in the bill, you'll have to act quickly to take advantage of many of the options outlined here.
The jobs act permanently raises the limit on Small Business Administration loan guarantees to $5 million from $2 million, and it increases limits on its Express Loans for working capital to $1 million from $350,000 through September. But an increase in SBA loan guarantees to 90 percent from 75 percent and a waiver of SBA application fees expire this year. The higher guarantee and fee waiver were offered earlier, as part of the Economic Stimulus Plan, but had expired in May.
Jennifer Hrncir, a San Antonio, Texas, franchisee of Richmond, Va-based Rainbow Station, a day-care and after-school care provider, hopes to secure an SBA loan to build a second franchise before they expire. She opened her operation in 2003, borrowed money to buy 2.3 acres for a second school in early 2008 and had a loan commitment letter for construction funding when the credit markets collapsed.
Unless you, too, have an application pending, it's unlikely you can take advantage of the loan guarantee. However, a second program makes available $30 billion in federal money to community banks (with assets less than $10 billion) that make loans to small businesses. The interest the banks pay for these loans starts at 5 percent but drops to zero as they increase their small-business lending. To snag financing: Find out which community banks in your area are participating. Franchisees should ask their franchisor to do this research, says Darrell Johnson, president of FRANdata, a franchise research firm in Arlington, Va. Independent business owners can check the SBA's database for their state, at sba.gov, to see what banks are lending to small business.
Once you've targeted a bank or two, introduce yourself to a loan officer, tell her about your business and invite her for a tour. Before filing a loan application, "get your financial statements in order, to show you are trending up," says Marilyn Landis, CEO of Basic Business Concepts Inc., in Pittsburgh, Pa.
The Small Business Jobs Act contains several tax deductions designed to reduce your taxes if you expand your business and, the federal government hopes, hire more workers. Again, some of these tax breaks expire quickly and all are fairly complicated. To take advantage of them, meet with your accountant or a tax consultant before year's end.
For 2010 only, self-employed individuals can deduct the cost of health insurance for themselves and their families from their self-employment taxes, cutting their tax bills by 15 percent.
Before the end of the year, you can amend your 401(k) plan and roll the funds into a Roth IRA. You'll have to declare the value of the plan as taxable income, but the act lets you pay the taxes over two years instead of one. After that, gains in the plan are tax free.
For their 2010 tax filings, eligible small businesses can carry back their business losses for five years. This means that if your business lost money in 2010 but made money in 2005 through 2009, you could pay less taxes next April, or even get a refund.
Individuals who invest in a small business before Jan. 1 and hold their stock for five years won't have to pay capital gains taxes.
If you started a business in 2010, you can deduct $10,000 of the money spent prior to your first sale, for expenses.
Small businesses that purchase capital equipment during the 2010 and 2011 tax years can deduct as much as $500,000 of it from their taxes. The temporary deductions also include leasehold improvements made to restaurant and retail property, as much as $250,000.
Lisa Whiting, founder of Imagination Trends, a company in Deforest, Wis., that designs and manufactures interactive wall graphics, is also in line for a 90 percent guaranteed SBA loan this year, for $1.3 million. Because she started her business in April and spent $75,000 on leasehold improvements and $425,000 on equipment, she'll also take advantage of at least three of the act's tax breaks. Whiting has already expanded from three to 11 employees and plans, by using more tax credits, to reach 30.