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28 September 2010


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Obama's Small Business Plan

On 16 Sep 2010 the Senate passed The Small Business Jobs Act of 2010 (otherwise known as HR.5297) and the President it into law on 27 Sep 2010.  The question is, how does this impact you as a small business owner or someone who is considering starting a small business now. 

First, a quick summary of some of the key elements that is included in the bill and then some analysis.


100% Exclusion of Small Business Capital Gains:

Generally, non-corporate taxpayers may exclude 50 percent of the gain from the sale of certain small business stock acquired at original issue and held for more than five years.  For stock acquired after February 17, 2009 and before January 1, 2011, the exclusion is increased to 75 percent. At the time of sale, however, 28% of the excluded gain will be treated as a tax preference item subject to the alternative minimum tax (AMT).

General Business Credit Carried Back Five Years:

This bill would extend the one year carry-back for general business credits to five years for certain small businesses.  This would apply to general business credits for those sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years. 

General Business Credit Not Subject to AMT:

Normally, a few credits may be used to offset AMT liability, such as the credit for small business employee health insurance expense.  This bill would allow certain small businesses to use all types of general business credits against their AMT.

S Corp Holding Period:

Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 years following its conversion or face a business-level tax imposed on the built-in gain at the highest corporate rate of 35 percent. This holding period is reduced where the 7th taxable year in the holding period preceded the taxable year beginning in 2009 or 2010.

Increase Small Business Administration (SBA) Loan Limits:

This provision would increase 7(a) loan limits from $2 million to $5 million, 504 loans from $1.5 million to $5.5 million, and microloans from $35,000 to $50,000. 

Small Business Lending Fund:

The bill would authorize the creation of the Small Business Lending Fund to provide the Treasury Department with the ability to purchase preferred stock and other debt instruments from eligible financial institutions with less than $10 billion in total assets.  Eligible institutions include insured depositories, bank and savings and loan holding companies, and certain community development loan funds.

State Small Business Credit Access Fund:

The bill would provide $900 million in grants to States to support small business lending programs.

Increase of Section 179 Expensing and Expansion to Certain Real Property:
This bill would increase the thresholds to write-off up to $500,000 of capital expenditures subject to a phase-out once these capital expenditures exceed $2,000,000 for the taxable years beginning in 2010 and 2011. 

Extension of Bonus Depreciation:

This bill would extend the additional, first-year 50 percent depreciation for qualifying property purchased and placed in service in 2010.

Increased Deduction for Start-up Expenditures:

For the taxable year beginning in 2010, this bill would temporarily increase the amount of start-up expenditures that may be deducted to $10,000 subject to a $60,000 phase-out threshold.

Small Business Export Promotion:

The bill would authorize funds for U.S. Trade Representative’s market access and trade enforcement activities targeted at helping small business increase market access and would ensure a level playing field on which to sell their U.S. made goods.

Enhanced Small Business Trade Opportunities:
It would elevate the SBA’s Office of International Trade and adjusts the agency’s international trade loan programs to provide small businesses with practical, user-friendly financing options.  The provision would provide $60 million over two years to establish the State Trade and Export Promotion Grant Program (STEP), which seeks to increase the number of small businesses that export by helping them to defray startup costs associated with exporting.

Improved Small Business Federal Contracting Opportunities:

The bill would remove the red tape and closes loopholes that too often put government work into the hands of multinational corporations instead of Main Street businesses.  It would establish accountability of large business prime contractors for prompt payment to small business subcontractors. 

Relief for Community Partners:

This provision would allow SBA to waive or reduce the non-federal share of its funding requirements for up to one year, through fiscal year 2012, for certain Women’s Business Centers (WBCs) and microloan intermediaries, which provide assistance to start and grow small businesses with an emphasis on those in underserved communities.

Modify Section 6707A Penalty:

The bill would revise section 6707A of the Internal Revenue Code to make the penalty for failing to disclose a reportable transaction proportionate to the underlying tax savings.  The penalty for failure to disclose reportable transactions to the IRS would be set at 75 percent of the tax benefit received.  The minimum penalty under this bill is $10,000 for corporations and $5,000 for individuals, and the maximum penalty is $200,000 for corporations and $100,000 for individuals.

Deductibility of Health Insurance for the Purposes of Calculating Self-Employment Tax:

This provision would allow business owners to deduct the cost of health insurance  incurred in 2010 for themselves and their family members in the calculation of their  2010 self-employment tax.

Enhancements to Small Business Contracting Parity Programs:

Place the small business contracting programs -- HUBZone, 8(a), Service-Disabled    Veterans and Women-Owned Businesses -- on a level playing field when competing   for federal contracts.

Improvements to Disaster Recovery to Include Aquaculture:
Allow SBA, to make economic injury disaster loans to these businesses.

Require Information Reporting for Rental Property Expense Payments:

This provision would strengthen the Regulatory Flexibility Act by requiring agencies     to respond to the SBA Chief Counsel of Advocacy’s comments in the final rule.

Require Information Reporting for Rental Property Expense Payments. 
The bill would require persons receiving rental income from real property to file information returns to the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses.  In general, there is an exception for individuals renting their principal residences, including active members of the military, from the reporting requirements. 

Increase Penalties for Failure to File Information Returns:
The bill would increase penalties for failure to timely file information returns to the IRS.  The first-tier penalty is increased from $15 to $30, and the calendar year maximum would be increased from $75,000 to $250,000.  The second-tier penalty would be increased from $30 to $60, and the calendar year maximum is increased from $150,000 to $500,000.  The third-tier penalty would be increased from $50 to $100, and the calendar year maximum from $250,000 to $1.5 million.

Application of Levy to Payments to Federal Vendors Relating to Property:

The bill clarifies that Treasury’s continuous levy authority on government payments to Federal contractors who owe back taxes to the IRS applies to amounts paid for property, as well as to payments for goods and services.

Application of Continuous Levy to Tax Liabilities of Certain Federal Contractors:

The bill allows IRS to issue levies prior to a CDP hearing on Federal tax liabilities of Federal contractors.  It would also provide the taxpayer with an opportunity for a CDP hearing within a reasonable time after a levy is issued.

Clarify Bad Check Penalty:

The bill would expand the penalty for submitting a bad check to the IRS for payments made through any commercially acceptable means, including electronic payments.


For a small business owner looking for capital to expand his/her business the bill gives you the opportunity to borrow more, however, it does nothing to change the process of obtaining a loan.  It did credit history requirement to obtain a loan does not change.  It does not streamline and speed up the process of obtaining a loan, not even the loans that are now 90% guaranteed by the SBA.  You may get a micro loan up to $35,000, but you still have to meet the same requirements and red tape to get that loan.

This bill was intended to provide liquidity to small businesses.  However, the way that the money will get to small businesses is through already established lending institutions such as large banks, community banks, non-profit lending institutions and State financed lending institutions.  The way that an Entrepreneur gets finance does not change.

Another way that the bill is supposed to help Entrepreneurs is by allowing them greater tax credits and deductions.  These methods do nothing to provide immediate credit to businesses.  The key to a successful startup business is the ability to have immediate access to capital to buy equipment, raw materials, pay rent, etc. Waiting for anticipated returns from tax filings after the year is over is not the way to provide timely credit.

In the final analysis, I don’t believe that many small businesses will be knocking down the doors of financial institutions for greater financing.



by Tim Miller






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