President Obama announced his new American Jobs Act and promised it would invigorate small businesses. I’m often skeptical of the impact of any regulation, but this bill has a lot in it for you and me as business owners.
There are 3 key sections that you should know about. Here’s my summary of those segments. If you have specific questions about other sections of this act, feel free to ask questions and I’ll do my best to answer those.
- Payroll Tax Reduction for workers
The payroll tax reduction actually cuts in half the withholding for social security and Medicare. Deductions from your employees paychecks could go from 6.2% to 3.1% … leaving employees with a bit more take home pay.
- Payroll Tax Reduction for employers
The tax cut also puts money in the business owner’s pocket because it reduces the employer match too. This could result in significant savings to companies, especially those in the service sector where payroll is one of the highest expenses. President Obama is hoping that businesses spend this extra money on equipment and new jobs, further stimulating the economy.
- Investment Credit
If you have needed some new equipment, the bill could help. It extends the 100% deduction allowance through 2012. Under this arrangement, business owners can write-off the full cost of capital improvements in the year of purchase. This is a modern-day version of the Investment Tax Credit that was used in the early 1980’s to encourage businesses to spend. It worked back then and it will probably work again.
Not all purchases qualify for the investment credit, of course, but those that do include tangible property with a recovery period of 20 years or less, water utility property, certain computer software, and qualified leasehold improvement property.
Whether or not the President gets this bill through congress has yet to be seen. For now, it looks like it is a reasonably positive development for business owners.
Stay tuned, and we’ll try to keep you up to date.
Dedicated to your (tax-free) profits,
- David Worrell
- Janet Driscol, CPA
PS: Janet Driscol, CPA contributes to RockSolidFinance.com and is available to discuss tax strategies and the pending legislation. She can be reached at firstname.lastname@example.org