Do you own a small business, or are you thinking about starting one? If so you need to know about a new federal law written just for you.
In late September 2010, after a summer full of debate and give-and-take, President Obama signed the Small Business Jobs and Credit Act (SBJCA) into law. Basically, the law gives incentives for entrepreneurs to start-up new small businesses, as well as aid and incentives for existing small businesses to stay open and hire new workers.
Here are some of the key provisions:
Tax deductions. There are two big tax breaks in the SBJCA:
- For sole proprietors or self-employed business owners, you can take a tax deduction for health insurance premiums you pay. The deduction lowers your self-employment taxes. It covers premiums paid for you, your spouse, and your children up to age 26
- You can take an extra $5,000 tax deduction for start-up costs. The new limit is $10,000
Loans. The SBJCA creates the Small Business Lending Fund Program. Among other things, the program gives billions of dollars to local banks to make small business loans. Also, the Program increases the amount of money the Small Business Administration (SBA) may lend under its loan programs, as well as eliminates fees on most SBA loans.
Increase in Section 179 deductions or expensing. Now you can invest more in your own company by buying new machines or equipment, and expense up to $500,000 (an increase from $250,000). The SBJCA also allows you to expense items like certain real property and computer software and expense up to $250,000 of the costs.
These are just a few of good things the SBJCA does to help small businesses. Check out the law for more details, or talk to your business law attorney or accountant for more details.
Like with many things in life, you have to take the bad with the good when it comes to the SBJCA. Perhaps the worst part of the law is a new IRS reporting requirement. Under the SBJCA, small business owners who purchase goods costing more than $600 will have to file an IRS Form 1099 for each purchase. In the past, small businesses had to file the form for services costing more than $600, such as accountant fees.
Now, each time you buy over $600 in machinery or equipment - from a lawnmower to an ice machine - or need the services of a plumber or electrician - even if it's for your rental property - you need to file a Form 1099. Critics claim this requirement will hurt small businesses by increasing their costs - more forms means more time away from the job or paying someone else to fill them out.
What You Can Do
To take advantage of some of the SBJCA's offerings, you need to act fast. For instance, you only have one tax year to take the tax deduction for health care premiums. Also, the new Section 179 expensing provisions are good only through 2011.
You should also start thinking about your expected or needed expenditures for goods and services for the rest of 2010 and early 2011. The new 1099 reporting requirement starts in January 2011. If you can afford it now, it may save you time and money in paperwork to pay for goods and services over $600 by the end of 2010. Regardless, be sure to check the IRS web site periodically for the 1099 Forms for 2011 so you're prepared for the new requirements.
The SBJCA certainly will help many new and existing small businesses. Talk to your attorney or your accountant to make sure you're taking full advantage of the new law and following the new rules, too.
Questions for Your Attorney
- Does the SBJCA affect what legal form my start up should take?
- What happens to the expensing provisions after 2011?
- Can I file my 1099s electronically?