FOR IMMEDIATE RELEASE: April 2011

Understanding the Small Business Jobs Act

Small businesses employ a little more than half of all the private-sector employees in the United States, according to the Small Business Administration (SBA). The Small Business Jobs Act of 2010 was aimed at reviving growth in this important sector of the economy. The New York State Society of CPAs explains some of the key provisions for small businesses and their employees.

Tax Cuts for Small Business

Several tax cuts in the law were aimed at encouraging small business investment. Under Internal Revenue Code Section 179, the amount of qualified equipment purchases that businesses can now deduct jumped to $500,000 from $250,000 for 2010 and 2011. In addition, the phase out threshold for the Sec. 179 deduction was increased to $2 million for 2010 and 2011. The legislation also extended the eligibility period for bonus depreciation on qualifying business property, but there are requirements and limitations.

The Sec. 179 deduction applies to both new and used equipment, while bonus depreciation is only good for new equipment. However, the equipment—which can include items such as vehicles and software—must be used at least 50 percent of the time for a business purpose. The Sec. 179 deduction is calculated by multiplying the percentage of the equipment’s business use by its cost. So, a vehicle that costs $20,000 and is used 80 percent for business purposes would qualify for a $16,000 deduction. For new entrepreneurs, the law also temporarily hiked the deduction for start-up expenses to $10,000 from $5,000.

Pumped Up SBA Funding

The law also expanded financing available through the SBA. For example, it permanently raised limits on one popular loan program from $2 million to $5 million, and from $4 million to $5.5 million on a separate loan for manufacturing companies. At the same time, the Small Business Lending Fund will make $30 billion in additional funds available. Limits on microloans, meant for an entrepreneur’s start-up costs and for businesses in underserved communities, were permanently raised from $35,000 to $50,000. The law also included provisions intended to make it easier for small businesses to compete for federal contracts and created programs to enhance their export opportunities.

A Break on Cell Phones

The act relaxed the strict record-keeping requirements for employees who are provided a cell phone by their employer or who have the cost of their cell phone reimbursed by their employer. However, in such situations, employer-provided cell phones are still fringe benefits and must meet certain requirements in order for the employee to avoid having to include the cost of the cell phone in income.

New Rules for Landlords

[States, please take note: As of 3/9/11, there is a chance that the two different laws requiring 1099 reporting may be repealed. The House passed a repeal that affects 1099 Forms for rental properties, and the Senate passed a repeal of that covers payments to corporations, but did not include the rental property requirement. Please stay abreast of this legislation before you publish this Money Management Column.]

The act did include a new complication for landlords. As of January 1, anyone who receives rental income must prepare and submit Form 1099 if they pay any service provider a total of $600 or more a year for work done on that rental property. This applies whether you own something as simple as a two-family house or are a more serious real estate investor. If you hire a landscaper, carpenter, plumber or anyone else to provide a service for your rental property and pay them more than $600 dollars in aggregate for the year, you will have to prepare a 1099, with one copy going to the Internal Revenue Service and one to the vendor. There are some exceptions, and a possibility that the laws related to Form 1099 for rental properties might be repealed, so be sure to consult your CPA about all the details.

Consult Your CPA

Owning a business is complex, and navigating the Small Business Jobs Act provisions related to ownership and employing others can be overwhelming. For more details, be sure to contact your local CPA. He or she can provide expert advice on all your financial concerns.