The House passed a bill that will provide $12 billion in tax breaks and a $30 billion lending fund to small businesses by a party-line vote of 237-187.

The bill was passed by the Senate last week, with two Republicans crossing party lines to overcome a filibuster, and will now go to President Obama’s desk for his signature (see Senate Passes Small Business Jobs Act).

“This bill provides vital access to capital and tax relief to America’s small businesses to encourage them to invest and hire new workers,” said House Ways and Means Committee Chairman Sander M. Levin, D-Mich. “This should be an issue that enjoys strong bipartisan support.  Unfortunately, too many Republicans in this body stand in opposition to this bill for purely political reasons.”

The Small Business Jobs Act is expected to help small businesses create 500,000 new jobs, by giving small businesses $12 billion in tax cuts to spur investment, growth, new starts and hiring; doubling and enhancing small business expensing and extending bonus depreciation.

“Today’s vote brings us one step closer to ending the months-long partisan blockade of a small business jobs bill that was written by both Democrats and Republicans,” said President Obama. “This is a bill that would cut taxes and help provide loans to millions of small business owners who create most of the new jobs in this country. It is fully paid for, it won’t add to the deficit, and small businesses across the country have been waiting for Washington to act on this bill for far too long. “

The bill allows for a 100 percent exclusion of capital gains on investments in small business, doubling the deduction for start-up expenditures, and allowing self-employed taxpayers to deduct health costs for payroll tax purposes.

The bill also leverages up to $300 billion in private sector lending for small businesses, along with state grants for small business lending. It expands small business access to private capital to finance an expansion and hire new workers.

The bill creates a $30 billion Small Business Lending Fund to provide community banks with capital to increase small business lending. The fund is limited to the smallest banks, those holding $10 billion or less in assets, with key performance-based standards to incentivize those lenders that extend new credit to small businesses (decreasing the dividend rate banks pay as they increase small business lending).

It also invests $1.5 billion in grants to support $15 billion in new small business lending through already successful state programs.

The bill expands access to and lowers costs for small business to access Small Business Administration loans and increases SBA loan limits.

The bill also continues the small business lending program that eliminates fees charged for SBA loans [7(a) and 504 loans] and increases the government guarantees on 7(a) loans from 75 percent to 90 percent through the end of the year. Since its creation, this has supported over $26 billion in small business lending, which has helped to create or retain over 650,000 jobs. The bill raises the cap on small business loans to increase lending by $5 billion in the first year, increasing the 7(a) and 504 loan limits from $2 million to $5 million, 504 loan limits for manufacturing firms are increased to $5.5 million, Microloan limits are increased from $35,000 to $50,000 and SBA Express working capital loans are increased from $250,000 to $1 million. In addition, the bill spurs investors by giving a 100 percent exclusion from capital gains taxes on small business investments.

The bill also reduces small business taxes by allowing them to carry back general business tax credits to offset their taxes from the previous five years.

Small businesses will also be able to count the general business credits against the alternative minimum tax, freeing up capital for expansion and job growth.

The bill doubles small business expensing to $500,000, phasing out at $2 million, for immediate write offs of capital investments, such as equipment and machinery, in 2010 and 2011. It also expands purchases qualifying for expensing to include certain types of real property, such as leasehold, retail and restaurant improvements.

“For 2010 and 2011, there is a more favorable depreciation provision under Section 179,” said Lewis Taub, a director in the closely held practice at McGladrey’s New York office. “That’s the section of the code that allows businesses to deduct up front the cost of their capitalizable property. It doesn’t have to be depreciated over five, seven, 10 years.”

In addition, the bill extends bonus depreciation, allowing businesses to immediately write off 50 percent of the cost of new equipment investments in 2010 to spur investment and growth.

The bill doubles to $10,000 the tax deduction for start-up expenditures for entrepreneurs looking to launch a new venture. It creates a variety of new tools to help small businesses gain international market access and export goods (at the U.S. Trade Representative, SBA, and Commerce), including a new State Export Promotion Grant Program (STEP), which will leverage more than $1 billion in exports.

The bill also improves tax fairness by preventing small businesses from incurring large tax penalties, under Section 6707A, aimed at large corporations and wealthy individuals investing in tax shelters.

The bill removes onerous record-keeping requirements that complicate the ability to deduct the costs of cell phone use as a regular business expense. It also allows self-employed individuals to deduct health insurance costs in paying the self-employment tax in 2010.

In addition, the bill aims to remove the red tape and close loopholes that often put government contracts into the hands of multinational corporations, instead of Main Street businesses. It provides for periodic reviews of small business size standards in government contracts and requires prompt payments to small business subcontractors from large businesses with government contracts.

The bill also ensures that no business contracting program – HUBZone, 8(a), and Service-Disabled Veterans and Women Owned Businesses – takes priority over another in competing for federal contracts.

The bill is fully paid for by closing tax loopholes and the tax gap. It takes another in a series of steps to close tax loopholes that promote corporations shipping jobs overseas, dealing with the source rules on guarantee fees for indebtedness.

The bill also closes a loophole that allows paper mills to claim the biofuel tax credit for a byproduct known as "crude tall oil," a waste by-product of paper manufacturing. The bill would limit the tax credit to fuels that are not highly corrosive (i.e., fuels that could be used in a car engine or in a home heating application).

The bill also allows 401(k), 403(b), and governmental 457(b) plans to permit participants to roll their pre-tax account balances into a Roth account. Contributions to Roth accounts are taxed when made, but distributions of both principal and earnings are tax-free upon withdrawal.

In addition, the bill reduces the tax gap by requiring information reporting for rental property expense payments, increasing the penalties for failure to file information returns, and tightening the process for going after federal contractors who have not paid their federal taxes.


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