It's hard for all us not to get political during an election year. In the next several months you'll see more negative mudslinging between the Presidential candidates in a war of negativity and word twisting that I don't believe we have ever experienced before. Since I am a small business owner, one of my points of view during this election is to look out for and inform other small business owners. Since I think small business owners will be the real engine of job growth over the next four years, owners need to really look closely at what the candidates are proposing to do to support the growth of small business.
It's funny to me that all we hear about is that over the past four years there have been 18 small business tax cuts by the current administration to drive small business growth. If you try to Google the 18 small business tax cuts, you'll find out quickly that they are really hard to find. You would think if these were some really good tax cuts that worked well, one would list a very bold and positive list of the actual tax cuts and the outcomes on how it helped small business owners. Wouldn't that be a no brainer? In fact, you'll be lucky if you go four pages deep in Google before you can even find a half coherent list of the tax cuts. So let me shed some light on this for you.
In the Recovery Act and subsequent legislation in 2009 and 2010, the President signed the following eight small business tax cuts into law: (source: www.whitehouse.gov)
- A New Small Business Health Care Tax Credit
- A New Tax Credit for Hiring Unemployed Workers
- Bonus Depreciation Tax Incentives to Support New Investment
- 75% Exclusion of Small Business Capital Gains
- Expansion of Limits on Small Business Expensing
- Five-Year Carryback of Net Operating Losses
- Reduction of the Built-In Gains Holding Period for Small Businesses from 10 to 7 Years to Allow Small Business Greater Flexibility in Their Investments
- Temporary Small Business Estimated Tax Payment Relief to Allow Small Businesses to Keep Needed Cash on Hand
I can't cover all of the tax credits in this blog, but let me just walk you through on example of these supposed great tax credits that helped small business owners like the new small business health care tax credit.
To be eligible to get this credit, you must have covered at least 50% of the cost of an individual (not a family) health care coverage for each of your employees. You must also have fewer than 25 full-time employees (FTEs). Those employees must have the average wages of less than $50,000 a year. Let's break it down even more.
You are probably wondering: what IS an FTE? Basically, two half-time workers count as one full-timer. So, if you had total wages of $20,000 and 10 FTE's, you would divide the numbers and get to $20,000 average wage per employee.
Also, the amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit will be. If you have more than 10 FTE's or if the average wage is more than $25,000, the amount of the credit you receive will be less. By the way, the last three paragraphs were all pulled from www.irs.gov!
I own a small business and actually went through this tax calculation and I tell you that it was virtually worthless. Even if you paid half health insurance for your employees, if your average wages are $20,000 per year per employee how many of them do you think will even have the cash to take the insurance? You want to help a business owner? Make the tax cuts simple to understand and easy to execute.
These were eight that I could find pretty quickly and then I found the Small Business Jobs Bill that was proposed to create more small business tax deductions
- Zero Capital Gains Taxes on Key Investments in Small Businesses:
- The Highest Small Business Expensing Limit Ever- Up to $500,000
- An Extension of 50% Bonus Depreciation
- A New Deduction for Health Care Expenses for the Self-Employed
- Tax Relief and Simplification for Cell Phone Deductions
- An Increase in The Deduction for Entrepreneurs' Start-Up Expenses
- A Five-Year Carryback Of General Business Credits
- Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business
It's comforting to know that my big tax break does not have to go through the line by line onerous reporting on my cell phone to prove what portion of my mobile phone I use for business and what I don't use for business. Thank you for not making me list my phone calls to my mother! The Small Business Start up deduction got doubled to $10,000 temporarily, but that really only helps if you actually have cash. It's not a great idea to give the write off if you can't help people get access to the very capital that would help them start a small business. Thank you for this one as well. It's a big help to the small business community.
Even after I reviewed this list, I still realized that I don't think I could actually find a simple complete listing of the 18 tax deductions. What would be even harder would be to find one small business owner who could name five of them that actually benefited their businesses over the past four years. What is most comforting is that if you did actually use these over the past few years and are now a big success, you can look forward as the owner of the company to paying higher income taxes for your hard work and success.
For you small business owners, I shared these with you so you could really see what 18 tax cuts (or the 15 or 16 I listed) really looks like on pen and paper.
Did these make a difference in your business the last four years? I'd love to hear your comments. . . .
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder of oXYGen Financial, Inc - The Leaders in Gen X & Y Financial Advice and Services
Visit to www.oxygenfinancial.net to request a free consultation with the leading financial experts for people in their 20's, 30's, and 40's in the country.
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