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This blog is all about Making Money with Technology — making and saving money by using the right technology at the right time.
This week Congress passed a small business bill that promises three advantages to small business.
- Community banks will be able draw down funds from the U.S. Treasury to lend to small business;
- an increase in SBA lending at reduced fees and with a government-backed guarantee;
- improved depreciation — the rate at which small business can take tax deductions on technology purchased — a whopping 50% bonus depreciation & small business equipment expenses — up from $250,000 to $500,000.
All of these could be fantastic for small businesses who have held back spending due to the uncertainties of the impending tax increase (when the Bush tax cuts expire), the recession with its massive layoffs and then the fact that it has been nearly impossible for small businesses to get loans to grow — or in some cases, to even stay in business.
If this bill is signed by President Obama (and it will be) and if it does what its proponents insist it will, then there is finally some good news for small business.
The stimulus bill did not result in additional funding for small businesses — loans have been nearly impossible for a small business to get — even businesses in a growth state. The new bill (H.R 5297) guarantees and lower fees on Small Business Administration (SBA) 7(a) loans which will be highly beneficial for small business.
These SBA “loan sweeteners” reduce fees for borrowers and increase the government guarantees. Government guarantees reduce the risk to banks of non-payment, so if the small business gets qualified the banks are not on the hook if the loan does default. Bad for taxpayers who would be on the hook — but good for the banks and for the businesses who need the money to grow.
I’m not a proponent of bigger government, but the economy does need incentives for small and medium businesses to get the economy moving again. It seems the poor are getting poorer, and the rich are getting richer — and the middle class is getting squeezed out of the game.
From a technology point of view the big winner has to be the 50% bonus depreciation & small business equipment expenses — up from $250,000 to $500,000. Many businesses have held off replacing old computers or upgrading software — the faster depreciation and higher amount allowed may be just the incentive many need to start making money with technology and kick start the economy.
Another benefit under this bill, which doesn’t really have anything to do with technology — but is still worth noting — is the health insurance aspect. the self employed are able to take an income tax deduction for the cost of health insurance. Be forewarned that the health insurance premiums are not deductible when you are computing your self employment tax. The Senate bill does change the law allowing you to deduct the health insurance costs for self employment tax purposes. The total amount is dependent on income, the tax rate on your health insurance can range from 2.9 percent to 15.3 percent, so this can be a huge savings for small businesses — well worth noting if though it isn’t technology related.
Tax credits are usually better than tax deductions because they offset tax dollar for dollar. Currently, if you have business tax credits that you cannot use in the current year, you can carry them back one year or carry them forward for twenty years. The new bill allows you to carry back the credits for five years. In addition, the credits can be used to offset alternative minimum tax.
One can only hope.