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Senate jobs bill unveiled.

July 13, 2010

Now that Congress has returned from recess, Senate Majority Leader Harry Reid (D-Nev.) anticipates his chamber will return to the small-business jobs bill that creates a $30 billion Small Business Lending Fund and provides roughly $12 billion in tax breaks for businesses.

According to Reid, because it is an election year, he opted to fill the amendment tree the week before the Senate adjourned for recess, a move that prevents senators from offering amendments to the pending measure, which was introduced by Senate Finance Committee Chairman Max Baucus (D-Mont.) and Senate Committee on Small Business and Entrepreneurship Chair Mary Landrieu (D-La.).

Tax provisions

The Small Business Jobs Act of 2010 (H.R. 5297) is aimed at helping small business access capital, stimulate investment in small businesses and promote entrepreneurship, and includes various tax provisions.

Sens. Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.) Tuesday night introduced an amendment to the bill which would permanently reform the federal estate tax. The amendment would permanently set the estate tax rate at 35 percent, with a $5 million exemption amount phased in over 10 years and indexed for inflation. It would also provide a "stepped up basis" for inherited assets. Please click here for more information from NSBA on estate tax reform.

Other tax provisions in the bill include an increased deduction for start-up expenses--currently, entrepreneurs can deduct up to $5,000 of expenses with a $50,000 phase-out. The bill would increase the deduction to $10,000 with a $60,000 phase-out threshold beginning in 2010. For 2011, the bill increases Section 179 Expensing from $250,000 to $500,000 with a phase-out threshold of $2 million. H.R. 5297 would restore through 2010 the 50-percent first-year bonus depreciation for some kinds of property.

Additionally, the bill temporarily increases to 100 percent the capital gains exclusion for stock issued by some small businesses from the time the bill is enacted through the end of the year. The gain is limited to 10 times the original investment or $10 million, whichever is greater. For 2010, businesses with less than $50 million in gross receipts will be able to carry back general business credits to offset tax liabilities for five years, instead of the year allowed in current law, and could apply those credits against the alternative minimum tax.

Normally, when a company converts from a C corporation to an S corporation, it must retain its assets for at least 10 years or pay a 35 percent tax on the built-in gains that occurred before the company made the conversion. The 2009 Recovery Act reduced the holding period to seven years for assets sold in 2009 and 2010; this bill would reduce the period to five years for an asset sold in the 2011 tax year.

NSBA has been working tirelessly to provide a level playing field for our nation's 23 million self-employed Americans by allowing them the same business deduction for health care costs that all other business entities currently receive. Sens. Landrieu and Sen. Olympia Snowe (R-Maine), and other members worked hard during the health reform debate to address this inequity. Unfortunately, due to cost concerns it was not included in the final bill.

However, a provision contained in the Jobs Act allows for a one-year business deduction of health insurance costs for the self-employed. Under current law, business owners are not permitted to deduct the cost of health insurance for themselves and their family members for 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. This provision is estimated to cost $1.96 billion over ten years.

While NSBA supports a permanent deduction for the self-employed; the one-year deduction is an important first step and will provide some relief for the self-employed community.

Another proposal long supported by NSBA is being offered by Sen. Barbara Boxer (D-Calif.) in the form of an amendment to the bill. S Amdt. 4430 is a one-year authorization of the standardized home office deduction which will help simplify the tax code for home-based businesses. The amendment gives small business owners the option of taking a standard home office deduction equal to the lesser of $1,200 or the annual gross income from the taxpayer's home business.

Boxer's amendment offers taxpayers a simpler, optional method of calculating the home office deduction. Allowing eligible individuals to take a standard deduction instead of itemizing their return, will increase compliance and reduce administrative costs for many small businesses.

While the goal is to pass the Jobs bill on the Senate floor this week, consideration could be interrupted if Democrats garner enough votes to adopt a financial regulatory reform conference report (H.R. 4173).

Small Business Lending Fund

The Small Business Jobs Act also would create a $30 billion Small Business Lending Fund aimed at increasing community banks' small-business lending.

The bill is based on a proposal the administration sent to Congress in May and is similar to legislation the U.S. House of Representatives approved on June 17. For more information on the Small Business Lending Fund, please click here.

The most noteworthy difference between the two bills is the Senate version's significant reduction in the State Small Business Credit Initiative Program. While the House bill provided $2 billion in funding for new or existing state lending programs; the Senate bill would provide $900 million.

Approximately 30 states already have crafted their own programs, leveraging public funds for substantial private financing, to increase small businesses' access to capital. The State Small Business Credit Initiative Program seeks to capitalize on the established successes of these programs to quickly increase small-business lending.
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Publication:The Weekly Advocate e-Newsletter
Date:Jul 14, 2010
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