Small Business Jobs Act

The Small Business Jobs Act that has now passed both Houses of Congress is a grab-bag full of incentives and tax breaks for small business. How much they will help, or if they will help is a legitimate question regardless of one's political outlook.  It's tough to effectively assess what tools will be helpful to small business because it is a heterogeneous group.  Also there’s not a lot of good data available to analyze small business reality vs. image.  Just look at all the arguing about whether the Bush Tax cut extension is important to small business to get a feel for what I’m talking about. 

That said, to fall back on cliché, this new legislation for sure is "better than a poke in the eye with sharp stick.”  Some key highlights:

 -       The Section 179 deduction allowance (designed to increase capital spending) has just been raised from $250,000 to $500,000 of qualified equipment and software. That means capital purchases that otherwise would be deductible over time can be expensed for tax purposes in the year of purchase. These limits are set for 2010 and 2011 spending.  The benefit used to get phased out after a business spent more than $800,000 on equipment in that year, now that cap is set at $2,000,000. 

o   The bill also expanded the definition of eligible expenditures to include up to a $250,000 deduction for qualified:   leasehold, restaurant and retail property improvements.

 -      If Section 179 isn’t enough, this legislation also extended the 50% bonus depreciation deduction that has been in place since 2008.  It allows immediate write-off of 50 percent of the cost of depreciable property place in service in 2010.

o   There’s an extra spiff in the bonus depreciation that helps construction companies with long term contracts capture this benefit that before wouldn’t have been allowed.   

Some of the comments about this legislation complain that there isn’t much time left in the year to make capital purchase decisions.  That’s a pretty reasonable point; after all we’re not talking deciding to make a quick trip to Walmart here.  Who knew the North Pole lobbyists had such sway with Congress?

 Other tax “perqs” in the Small Business Jobs Act include:

-      The amount of start up expenses you can deduct moves from $5,000 to $10,000.

-      Business owners can now deduct their health insurance premiums in a way that reduces their self-employment tax bill.  Based on the tax returns I see regularly this will get plenty of use. 

-      The way you deduct cell phones has changed to make it just a regular business expense. 

The one down-side in the bill really worth noting is an expansion of the soon-to-be-required 1099 reporting of all expenses more than $600.  Add rental housing to the list of business activities that will involve this type of "informational reporting".  Even if you’re not primarily in the rental business, if you rent a house that’s not your own home, chances are you’ll get caught up in this.  It doesn’t take effect until 2011.  Unfortunately it’s worth noting now since how all this new filing of information is going to be done is something we’ll have to figure out in the meantime.  (I'll be interested in seeing how Elf Outfitters manages their W-9 process.)