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The Small Business Jobs Act: 5 Things You Need to Know
The Small Business Jobs Act, signed into law by President Obama in September, contains $12 billion in tax breaks. How to find the ones that benefit your company.
Posted 10/ 20 10 at 10:00 PM | 5 Things You Need to Know, Money, Management, Leadership, Starting a Business, Home-based Business, Taxes & Accounting, Legal Issues
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The Small Business Jobs Act, which was signed into law by President Obama in September, contains $12 billion in tax breaks for businesses. There are no direct incentives for hiring -- the thinking is that stimulating capital investments and certain other actions by businesses will help to create new jobs.Whether or not this model works remains to be seen, but you may be able to benefit from one or more of these tax breaks -- if you understand what they are and act in time. So which tax breaks are right for your company? Here are five things you need to know.
1
If you are self-employed and pay own health insurance premiums, you will have a lower tax bill this year.
While the payment of premiums for your staff is a business deduction, your own premiums are a personal deduction (they reduce your gross income and you don't have to itemize deductions to write off the premiums).
What's new for 2010 only is that your premiums reduce your net earnings from self-employment for purposes of the self-employment tax (covering your Social Security and Medicare taxes for the year), which can save you considerable dollars. For instance, if you pay premiums of $10,000 in 2010, you'll save about $1,500 in self-employment tax. In effect, the tax savings reduces your out-of-pocket costs for the premiums to about $8,500.
What's new for 2010 only is that your premiums reduce your net earnings from self-employment for purposes of the self-employment tax (covering your Social Security and Medicare taxes for the year), which can save you considerable dollars. For instance, if you pay premiums of $10,000 in 2010, you'll save about $1,500 in self-employment tax. In effect, the tax savings reduces your out-of-pocket costs for the premiums to about $8,500.
2
You may be entitled to a tax refund from prior years.
The general business credit is not a separate credit but an overall limitation on business credits. If this limitation prevents you from claiming the full credit amounts this year, you can carry back and carry over the used amounts (collectively called a general business credit carryback and carryover). Usually there's a one-year carryback and the carryforward is 20 years. For credits arising in 2010, however, the carryback period is extended to five years. This means the unused credits from 2010 can offset tax liability in the prior five years, so you can receive a tax refund now.
3
You can simplify your recordkeeping for cell phones.
Until now, cell phones have been treated by the tax law, like computers and cars, as "listed property." This means the opportunity to write off the cost of cell phones in the year they were bought was only allowed if you could show that business usage was more than 50 percent (that you used the phone less than half the time for personal reasons) and you had records to back this up. The new law "delists" cell phones, allowing you to expense their full cost as long as there is only nominal personal use.
If you give your staff company-paid cell phones for business use, your employees no longer need to maintain records of their business and personal usage. The company can deduct the cost of the phones using expensing or accelerated depreciation.
If you give your staff company-paid cell phones for business use, your employees no longer need to maintain records of their business and personal usage. The company can deduct the cost of the phones using expensing or accelerated depreciation.
4
You must act fast to benefit from some tax breaks.
While many of the tax breaks in the Small Business Jobs Act sound great, if you don't take action before the end of the year, you will lose out, because the breaks expire.
These include:
These include:
- 100 percent exclusion for gain from the sale of qualified small-business stock held at least five years. This exclusion applies only to stock of a C corporation that meets certain requirements and which is issued after Sept. 27, 2010, and before Jan. 1, 2011.
- First-year expensing. You can opt to deduct the cost of equipment up to a set dollar limit -- this is called first-year expensing or the Sec. 179 deduction. The limit had been $250,000, but it's been doubled to $500,000 for 2010 and 2011. And leasehold, restaurant, and retail improvements now qualify as Sec. 179 property even though they're not equipment. The cost of making such improvements in 2010 and 2011 can be deducted up to $250,000 in the first year.
- 50 percent bonus depreciation. This allows you to write off half the cost of new (not pre-owned) equipment, in addition to any first-year expensing and a regular depreciation allowance. However, this break applies only to purchases in 2010. This break lets you depreciate an additional $8,000 for the purchase this year of a new car, light truck or van used more than 50 percent for business.
- Startup costs. Expenses you paid before you opened for business can be deducted in the first year of operation up to a set dollar limit. Until now, that limit had been $5,000, but for 2010 only, the limit is $10,000. If you had startup costs totaling more than $10,000, you can deduct them ratably over 180 months (15 years). But if your startup costs total more than $60,000, the initial dollar limit is phased out; all costs must be deducted ratably if they are more than $70,000.
5
You can access some retirement income to help your business.
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Many people start businesses when their jobs are phased out or they retire. Using retirement income to pay your personal expenses can help see you through the startup phase of a business. Two changes to note:
- Partial annuitization. If you own a commercial annuity, it's no longer all or nothing. Starting in 2011, you can opt to receive annuity payments on a part of your annuity contract, allowing the rest of the contract to continue to grow (this is called partial annuitization). The only requirement: Payments from the annuity must be set at 10 years or more, or for life.
- Transfers to Roth accounts. Roth accounts that are part of 401(k) or other qualified plans enable you to create tax-free income. Starting now, you can transfer distributions from a qualified plan to a Roth account. You'll pay tax on the distributions, but will be able to withdraw these amounts any time from the Roth account; income on these amounts becomes tax free after five years. The plan must permit such transfers, so check with the plan's administrator.
Caution: The Small Business Jobs Act likely is not the final word from Congress on taxes for your business this year. Dozens of tax breaks that expired at the end of 2009 may still be extended -- retroactively -- for 2010. Best advice? Stay in contact with a tax expert who can advise you on moves to make to benefit from existing and potential tax breaks.
Barbara Weltman is an attorney, author of several business books including J.K. Lasser's Small Business Taxes and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business, both available at www.barbaraweltman.com, and host of Build Your Business radio. Follow her on Twitter at Twitter.com/BarbaraWeltman.
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Comments (Page 1 of 2)
Wow, let me run and get those tax breaks fast before they run out... wow...
You've got to be f#$%ing kidding me RIGHT !
what is a geniter?
And people still think that a Community Organizer can run this place.....just like letting the genitor become the CEO over night.
PS: I apologize if I offended any Genitors in a comparison with our Community Organizer in Chief
Don't you just love it when the Government feels compelled to motivate business owners? Business owners are very motivated, If the Government really wanted to help they would get rid of so many hoops and regulations a business owner has to jump through, not add more of them.
Looking for a great income and also feel great physcially at the same time?????? E-mail me and let me tell you about the incredible company -Advocare - - - - and its products and income!!!
Can all the small businesses get some of that stimulas money? We are the ones putting people to work, so why not sign some of the stimulas money to the small businesses.
signed the small people
we need the capital money right now for our business that have fallen behind in every area. we are looking for stimulas money this bill about saving money for small business???????? we may not be in business for too long, who gets all these tax breaks, big deal
Yeah, if you believe this there is a bridge....
This person maybe certifi--able
The tax breaks are from the Republicans not the Dem's. the Dem's wanted to get money into the system thru loans the is the rest of the 30 billion bill. it's not enough. If you want more stupid tax breaks vote Republican.
They have to be kidding. These are not tax breaks they're just more brakes for the economy. Does any businessman out there think that these gratuitous do nothing excuse for real tax breaks will blossom into the winter of recovery in stead of the winter of discontent. Aloha Democrats!
Martinez, hei fellows americans this is only an election's trick, it looks to nice to expire to soon, after you vote for them, they will forget you next month.
I'm happy my president is doing something for the real small businessman rather than those companies who feign being small when in fact they're some of the largest company's in the world. The truly greedy hiding behind conservatives who act as sock puppets for them; lying to all of society.
You'll get your country back,in much better shape than you've ever seen it! I look forward to November 2. We will not go back!
You missed one, The 6th thing...IT'S A JOKE, LIKE ALL OF OBAMAS BS ! !
Kick him and his brain dead college boys, OUT !!!!!!!!!!!!!!!!!!!!!!
this so called leader of ours is something else!! someday he will wake up and realize he is not a president, this guy absolutely does not know what he is doing. he was probably just as bad as a organizer. only in america can we elect someone who is way out of his league....
I don't think our leader has any clue what he is doing. The only thing that matters is that the banks start lending money and putting people back to work. Everything else will fall in place. Take the fear out of people. Have all the politicians take a pay cut. Good luck
The election of 2010 may be one of the most critical in American history. The nation is teetering on the edge of bankruptcy as the national debt reaches $450,000 per person(see usdebtclock.org). With our average net worth at $150,000 we are $300,000 in debt to the US Gov't. In other words- we are basically broke as a nation and the administration seems intent on adding to this fact through even more reckless spending.
Funny how even as we suffer financially the administration seem to be stroking the flames of class warfare and offering solutions of 'wealth redistribution' from the 'rich' to the 'poor'. Funny but Lenin did a similar move in Russia in 1917. Riding the wave of class hatred to power he not only eliminated the wealthy but redistributed their wealth to the peasants and party members(who for the most part squandered it). In the process he began a civil war that cost 20 million lives. Not a pretty picture and a dangerous path to follow.
America was founded on the premise that God and God alone gives us our rights- life, liberty, pursuit of happiness. Not the government. The governments role was to be limited as individuals depended on faith, self reliance and American ingenuity to solve their problems and create the greatest nation the world has ever seen.
I WONDER HOW MUCH OF THIS MONEY WILL BE GOING TO ILLEGAL HISPANIC'S, KNOWING OBAMA HE'S GIVING MORE OF OUR MONEY AWAY TO PLEASE A GROUP OF CRIMALS.
FREDERICK C BRONSON DURHAM NC
Fred, you're a felon!
How many days in a row will AOL use that same photo and article of Obama signing the "small business jobs act"? It's obviously a Democrat National Committee advertisement - is AOL doing that gratis for the left and making conservatives pay for advertising?
By now it's obvious that this photo op by Obama will NOT create any jobs at all, so who's kidding who here?
On Tuesday, November 2nd, the American People will take out the trash, and begin to rebuild this great Country. Will these comments be censored by AOL or will they have the guts to print it?