Small Biz Bill Becomes Law

While we wait to see if the Bush-era tax cuts are allowed to expire here are a few points on the Small Business Job Act of 2010 which was signed into law on September 27, 2010. The legislation contains several provisions designed to ensure that small businesses have access to adequate credit. The Act also contains targeted short-term tax relief for small businesses.

A $30 billion credit facility for community banks, backed b y the Treasury, is designed to goose lending conditions, while teh muscle of the Small Business Administration is being augmented throught eh expansion of the SBA's loan limits. Investors were also targeted through the legislation, as a provision was put in place for the balance of 2010 that will eliminate all capital gains on "key small businesses" as long as the investments are held for five years or longer.

Regarding the SBA program, the caps on both 7(a) and 504 loans were permanently escalated to %5 million from $3 million, while manufacturing related loans were bumped uo to $5.5 million from $4 million. Moreover, SBA Express loans were temporarily boosted to $1 million from $350,000.

Other components of the bill included an initiative designed to augment state programs providing credit to small businesses, on top of multiple tax cuts, 16 in all, meant to spur investment.

Specific tax changes include:

Increased IRC Section 179 expense limits - effective for 2010 and 2011, the maximum amount that a business is able to expense under IRC Section 179 is increased to $500,000 (without the legislation, the expense limit would have been $250,000 for 2010 and $25,000 for 2011). The $500,000 limit is reduced if capital expenditures exceed $2 million. The Act also temporarily expands the application of Section 179 to up to $250,000 of certain real property (for example, qualified restaurant property).

First-year "bonus" depreciation extended - The Act extends the additional 50% first-year depreciation deduction that was in effect for 2008 and 2009 for one year, to qualified property acquired and placed in service during 2010.

Small business stock exclusion increased - The Act temporarily increases the exclusion percentage for qualified small business stock purchased by individuals to 100%, and does not treat the excluded gain as an alternative minimum tax preference item. Therefore, subject to certain limits, you'll pay no regular tax or alternative minimum tax on the sale of qualified small business stock acquired at original issue after September 27, 2010, and before January 1, 2011, provided you hold the stock for at least five years.

Small businesses get enhanced general business credit - Eligible small businesses (generally, non-publicly traded corporations, partnerships, or sole proprietorships with gross receipts averaging $50 million or less) will be able to carry back excess general business credits up to five years (instead of one) in 2010, and will be able to use the general business credit to offset both regular and alternative minimum tax liability.

Health insurance costs will reduce self-employment tax - If you're self-employed and pay health insurance premiums for you or your family, you get a break on your 2010 self-employment tax (the tax that you calculate on Form 1040, Schedule SE). That's because, for 2010 only, the deduction you get for the cost of health insurance for yourself and your family will apply in calculating your earnings for purposes of self-employment tax as well as in reducing your income for tax purposes.

Cell phones no longer listed property - Effective 2010, cell phones are not considered listed property, significantly reducing the substantiation rules and depreciation limits that apply when cell phones are used for business purposes.

New reporting requirements for rental property expenses - With some exceptions, starting in 2011, if you receive rental income from real property, you'll be required to file an information return (Form 1099) when you make payments totaling $600 or more to a service provider (such as a plumber, painter, or accountant) for rental property expenses.

Portion of nonqualified annuity can be annuitized - Beginning in 2011, if you have a nonqualified annuity (an annuity that is held outside of a qualified retirement plan or IRA), you can annuitize only a portion of the annuity, provided the annuitization period is for 10 years or more, or is for the lives of one or more individuals. The portion of the annuity or contract that is annuitized will be treated as a separate contract, and the investment in the annuity will be allocated n a pro-rate basis.

For more details check with your CPA or tax planner.

Factoring on the Rise

The following is a reprint of sorts from Inc. Magazine. So many small business owners are looking for creative ways to raise capital, this is certainly timely. Just make sure you know what you are getting into if you use factoring.

Both the Wall Street Journal and the New York Times have had stories in the past few days about small companies finding cash from sources other than banks and credit cards, which have restricted capital to entrepreneurs since the recession began in 2008. The Times piece covers purchase order financing, which it describes as a twist on traditional factoring. Purchase-order financing, says the Times, involves written guarantees from a buyer who commits to purchasing a product.The Journal's story focuses on asset-based lending, a collateral-based form of financing where borrowers put up equipment, inventory, accounts receivable, or other liquid assets. We told you about the rise of this kind of financing, in some cases known as merchant cash advances, which can have annual interest rates as high as 100 percent, back in 2008. Check out our profile of On Deck Capital, one of the asset-based lenders included in the Journal piece, which has doled out around $50 million to 2,000 businesses.

Please share your factoring experiences with us.

Creating Your First Small Business Budget

As you start and build your business, it seems that there are a million things to take care of. Having a budget and knowing how to keep a budget are key elements for business success. If you don’t know how to budget or how to manage a budget, your business may not survive. Being able to cover your expenses, make payroll and still be able to give yourself a paycheck can be a very challenging task. Having good budgeting skills can help ensure you’ll be able to do these things. It will take some business strategy and planning, but it will be well worth it in the end.

Trent Hamm with OpenForum.com talks about creating your budget and provides tips on how to do it with success.

I'm going to make a prediction about your small business.

You didn't get into that business because you were excited and enthralled by the idea of managing your finances and setting up a budget.

I certainly didn't, and I've yet to run across a small businessperson who got started with their business out of a great excitement for budgeting and financial management.

Small businesses - the ones that succeed - are borne out of passion for something, whether it be a particular topic area, a particular methodology, or something else. Businesses succeed when people love what they're doing so much that they pour their heart and soul into it and the business grows in new and unexpected and powerful ways.

Suddenly - quite often, in fact - small businesspeople find themselves in a whole new world in which their lovely pet business has suddenly grown into a giant bull, surging forward into new directions with them holding on for dear life as things charge into new areas and experiences they never anticipated.

For almost all of us, one of these areas is budgeting. Quite often, the nucleus of a small business comes from a shoestring. A person figures out a passion and they seek ways to continue following that passion. They find others that share that passion (ideally) and they conceive of a way to make money from that passion. A book lover opens an independent bookstore. A gear head opens an automotive shop. Their dreams are filled with days chock full of their passion - and then the realities of billing, money management, and so forth burst in.

It's time to make a budget to get some sort of control over this new flood of money moving both into and out of the business. Here are five key pointers for people who find themselves in this brave new world.

First, the purpose of a budget is to simply consider carefully how you're spending your money. There are many, many formal ways to organize a small business budget, but they all have that same central goal in mind. A budget works if it reveals to you the ways in which you're overspending and the ways in which you're under-spending. Keep that in mind throughout the process.

Second, a budget plots your financial path to where you want to be. It's not merely a replication of how you spent money over the past year, even if that year was successful. If you just finished a year in which you went from 200 loyal customers to 1,000, you don't just multiply last year's budget by five. Some areas won't grow at all, while others will grow rapidly. Ask yourself what areas you felt were truly vital for the growth of your business - and, more importantly, will be vital going forward as you gain more customers and strive to maintain your level of quality.

Third, don't get bogged down in formality. The most important element of any budget is that the people who actually have to use it understand it. If the budget you're planning is getting so complicated and specific that you no longer find it useful to you, then it's not a worthwhile exercise. By all means, dig deeply into budgeting for specific areas that you want to streamline. Just avoid reaching a level of detail and complexity that takes the usefulness out of the document.

Fourth, remember that this is a living document. If you're budgeting for the next year, you're merely coming up with guidelines for where you want your business to go in the next year. Of course, we all know that quite often businesses zig when you expect them to zag. Don't just discard your budget and start shooting from the hip. Evaluate those changes, adjust your budget, and stick to the new guidelines you've developed.

Finally, seek some help if you're feeling overwhelmed by all of this. You can turn to an accountant, to a trusted (and wise) family member or friend, or even to your spouse. The more eyeballs you get on your goals and plans for future spending along with your records of how you currently spend, the better off you are.

A budget is not something to be feared. A budget is merely a document you develop for your own needs to help you keep your spending on a reasonable track to help your business to go where you want it to go. If it's not serving that need for you, it needs rethought from the ground up.