Kendall Capital

The long-stalled Small Business Jobs Act was passed into law on September 27^th, 2010. So what is in this bill? Will its perks and offerings benefit small businesses in Montgomery County, Maryland (MD)? And do you know about the interesting provision for anyone with a 401(k), 403(b) or 457(b) retirement account?

The Small Business Jobs Act provides a $30 billion fund to local banks to encourage loans.

To some, this part of the Small Business Jobs Act is a boon; to others, it is just a discouraging “mini-TARP”. The yet-unnamed fund would lend $30 billion to community banks with less than $10 billion in assets as these banks are the drivers behind small business loans. In Montgomery County, Maryland, banks like Damascus Community Bank, Capital Bank of Maryland and OBA Bank of Maryland are the ones that will be participating in providing the loans. These capital injections would come with financial incentives: while the banks would have to make recurring dividend payments to the U.S. Treasury as a condition of the loans, the payments could be lessened by 1% for each 2.5% expansion in small business lending that the bank demonstrates.(Incidentally, any bank that has accepted TARP money from the Treasury could opt to convert to the  Small Business Jobs Act program.)

So how will this fund be funded? Over time, a chunk of the money will come from federal taxes resulting from Roth plan contributions. The Small Business Jobs Act contains a provision that would allow more individual investors to go Roth (see below) which would mean more tax revenue for the Treasury. Other money will come as result of diminished tax breaks, stiffer tax penalties and more stringent tax reporting requirements in the years ahead.

The Small Business Jobs Act offers $12 billion in projected tax breaks.

The bill offers small business owners and small business investors some nice chances for federal tax savings. The Small Business Jobs Act would allow business owners to write off 50% of the cost of new equipment immediately, and raise the deduction for startup expenses all the way to $10,000. It would exempt long-term investors in certain small businesses from capital gains taxes. Owners of retail shops and restaurants could even get deductions for remodeling through the Small Business Jobs Act. Small business owners would also get a chance to deduct health insurance costs (for themselves and for their families) from self-employment tax for the 2010 tax year.

In contrast to other Obama economic incentives programs directed to increase consumer spending, such as the Car Allowance Rebate System (colloquially known as “Cash for Clunkers,” which cost US taxpayers over $130 billion), I believe that the best part of this tax incentive plan is that it makes small businesses in American invest in themselves and their business.

Two tax relief items did fall by the wayside as the bill went through the Senate. Republicans wanted to make the R&D tax credit for small firms permanent, and they wanted to ease 1099 reporting requirements that could prove grueling for small businesses starting in 2012. They achieved neither goal, but I wouldn’t be surprised to see these items revisit in 2011. 

A news flash for 401(k), 403(b) & 457(b) plan participants.

Under the Small Business Jobs Act, participants in 457(b) plans will be able to treat their elective deferrals as Roth plan contributions starting in 2011. Additionally, the bill would permit those with 401(k), 403(b) and 457(b) accounts to roll over their pretax account balances into Roth accounts. According to the bill summary, a plan participant would be able to defer the taxes on the Roth conversion and split them over 2011 and 2012 if the rollover is made in 2010.

Does the Small Business Job Act really address the issues facing small businesses?

Conservatives don’t think so. In their view, the only thingthe Small Business Jobs Act does is offer debt to businesses. Customers and cash are what these companies need, and these seldom arrive by means of government intervention. Liberals, on the other hand, contend that the Small Business Jobs Act’s $30 billion loan fund and the $12 billion in projected tax breaks will offer small businesses a lifeline during a very tough time, stimulating productivity and innovation and ultimately lessening joblessness and helping turn the economy around.

In my opinion, laws and regulations should be enacted to provide incentives to individuals to act in the best interest of our nation, and I believe this is exactly what the Small Business Jobs Act does.  On the one hand, the “Roth” retirement plan gives savers the incentive to save more. After tax, compounded tax-free saving is worth more to an individual in a high tax bracket than the pre-tax, tax deferred saving on the same dollar amount.  On the other hand, the Small Business Job Act provides incentives for small business owners to invest in capital and equipment. I strongly believe that this type of investment will give our county and our country a competitive advantage in this ever increasing global competitive market place.

Montgomery County, Maryland (MD) is a concentrated area of well educated, high earning individuals and small business owners that will directly and indirectly benefit from the recently signed Small Business Jobs Act.