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RV Businesses Can Benefit From Recent Tax Cut Initiatives

With tax season getting into full swing, RVIA has compiled a list of provisions legislated and enacted by Congress last year that can possibly provide significant tax benefits for businesses, including those in the RV industry.

The “Small Business Jobs Act” (Jobs Act), signed into law last September, includes eight new or extended small business tax cuts. A “small business” means a small business as currently defined by the Small Business Administration (SBA). For motorhome manufacturers, that is a business with 1,000 or fewer employees. For travel trailer manufacturers, it is a business with 500 or fewer employees. For supplier companies, it depends on the NAICS code of the business. (NAICS is the North American Industry Classification System). These tax cuts include:

•   Zero Taxes on Capital Gains from Key Small Business Investments: Under the Recovery Act, 75% of capital gains on key small business investments in early 2010 were excluded from taxes. The Jobs Act temporarily puts in place for 2010 a provision which eliminates all capital gains taxes on these investments if held for five years.

•   Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments: The bill increases for 2010 and 2011 the amount of investments that businesses would be eligible to immediately write off to $500,000, while raising the level of investments at which the write-off phases out to $2 million. Prior to the passage of the bill, the expensing limit would have been $250,000 in 2010 and only $25,000 in 2011.

•   Extension of 50% Bonus Depreciation: The Jobs Act extends a Recovery Act provision for 50%  “bonus depreciation” through 2010, providing 2 million businesses, large and small, with the ability to make new investments and receive a tax cut for 2010 by accelerating the rate at which they deduct capital expenditures.

•   A New Deduction of Health Insurance Costs for Self-Employed: About 2 million self-employed can get, on their taxes for 2010, a deduction for the cost of health insurance for themselves and their family members on their self-employment taxes.

•   Tax Relief and Simplification for Cell Phone Deductions: Small businesses can deduct the use of cell phones without extra documentation. The Jobs Act changes tax rules so that small businesses can receive a tax deduction for company-provided cell phones without burdensome extra documentation, making it easier for them to get deductions that they are entitled to. The benefit is available as of a business’s 2010 tax submissions.

•   An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses: The Jobs Act temporarily increases the amount of start-up expenditures entrepreneurs can deduct from their taxes for 2010 from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures).

•   A Five-Year Carryback Of General Business Credits: The Jobs Act allows certain small businesses to “carry back” their general business credits to offset five years of taxes – providing them with a break on their taxes for 2010 – while also allowing these credits to offset the Alternative Minimum Tax, reducing taxes for these small businesses.

•   Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business: The bill would change, beginning in 2010, the penalty for failing to report certain tax transactions from a fixed dollar amount – which was criticized for imposing a disproportionately large penalty on small businesses in certain circumstances – to a percentage of the tax benefits from the transaction.

The Jobs Act also included these provisions enhancing access to capital:

•   Small businesses (as defined by SBA) are now eligible to take out larger SBA loans – with the maximum 7(a) and 504 loan size more than doubled from $2 million to $5 million and the maximum 504 manufacturing related loan size increased from $4 million to $5.5 million.

•   The Small Business Administration's (SBA) 504 loan program was expanded to include refinancing of tangible property (real estate, equipment, etc.), effective Feb. 17, 2011 for loans maturing on or before December 31, 2012. Read more at http://frwebgate3.access.gpo.gov/cgi-bin/PDFgate.cgi?WAISdocID=OwusTC/3/2/0&WAISaction=retrieve

•   Beginning in spring 2011, the law will allow some small businesses to refinance their owner-occupied commercial real estate mortgages into the 504 loan program (expires 9/27/2012).

New U.S. Treasury programs will help provide credit for small businesses that are seeking to expand. Treasury is setting up two new programs designed to support private-sector lending to small businesses that are seeking credit to help them expand and create new jobs:

         o    Treasury’s Small Business Lending Fund (active as of Dec. 21, 2010) makes available $30 billion in capital to small banks with incentives to increase small business lending, potentially supporting several multiples of that amount in new credit.

         o    The State Small Business Credit Initiative will support at least $15 billion in new lending by strengthening state small business programs – many of them facing budget cuts – that leverage private-sector lenders to extend additional credit.

Under the Hiring Incentives to Restore Employment (HIRE) Act, two new tax benefits are available to qualified employers (defined as any employer other than the state or federal government) who hire certain previously unemployed workers. These benefits are not limited to small businesses:

         o    The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2% share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through Dec. 31, 2010.

         o    In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2% of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.  (See also the IRS web page at http://www.irs.gov/businesses/small/article/0,,id=220745,00.html )

Qualified employees are individuals who begin employment with a qualified employer after Feb. 3, 2010, and before Jan. 1, 2011, who have been unemployed or employed for 40 hours or less during the 60-day period ending on the date such employment begins, who are not employed by the qualified employer to replace another employee of that employer, unless the other employee separated from employment voluntarily or was terminated for cause, and who are not family members of or related in certain other ways to the employer.

RVIA advises this is not an exhaustive list of all the provisions enacted. A tax accountant or advisor should be able to guide businesses in navigating the benefits of the Small Business Jobs Act and the Hiring Incentives to Restore Employment (HIRE) Act.


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