Financial advisors who work with the self-employed and small business owners may find much to like in the Small Business Jobs and Credit Act of 2010, H.R. 5297, signed by President Obama on Sept. 27.
Much has been made of pieces of the law with an adverse impact on small businesses, such as the new paperwork mandates, which are aimed at increasing tax revenues.
Aside from the law’s more annoying provisions, however, are some potentially profitable options for small businesses. Agents who take a close look at the law can be in a position to enhance their value considerably to small business and self-employed clients.
This can help advisors reap more sales of retirement plans, life insurance and annuities. Plus, the stimulus provisions can also benefit personally those advisors who run their own businesses.
To sum up, the Small Business Jobs and Credit Act (SBJCA) of 2010 includes these provisions:
Creates a $30 billion lending fund to encourage banks to lend money to small businesses.
Provides tax incentives valued at $12 billion to encourage job creation by small businesses.
Offers grants to support at least $15 billion in small-business lending through state programs.
Allows participants in 401(k) and related retirement plans to roll over pretax account balances into a Roth account.
Beginning next year, allows holders of nonqualified annuities (annuity contracts held outside of a qualified retirement plan or IRA) or a cash-value life insurance contract to elect to receive part of the contract in the form of a stream of annuity payments, leaving the remainder of the contract to accumulate income on a tax-deferred basis.
Lets small-business owners deduct the costs of health insurance for themselves and their families from self-employment taxes for payroll tax purposes on 2010 returns.
The law provides a moderate income boost for many of your small-business clients. But more importantly, it also can provide opportunities to guide these clients in taking advantage of some of the law’s provisions.
The deduction for health insurance when calculating self-employment income offers obvious sales opportunities for producers who sell this type of insurance. But beyond that, it also puts cash in clients’ pockets, some of which you can help steer into life insurance, retirement plans or other investments that protect your business clients’ future, and that of their families.
The provision governing annuitization provides new investment options, particularly for small-business owners who are approaching retirement and who could therefore benefit from annuitization of some of the cash value they hold in a tax-deferred annuity or life insurance policy.
Also deserving a close look is SBJA’s provision allowing individuals contributing to retirement plans to roll over balances into a Roth account. This means that participants can include funds rolled over in 2010 in income reported to the IRS over two years beginning with tax year 2011. (Participants in governmental 457 plans can also contribute deferred amounts to Roth accounts they designate.)
Then there’s the massive lending fund created by SBJCA. This lets business owners draw on the equity in their companies, helping them to remain solvent and even to grow in this tough economic environment.
The $12 billion in tax breaks includes an immediate write-off of 50% of new equipment purchases in 2010 for small and large businesses. SBJCA will double, to $500,000, the amount of new investment that small businesses are allowed to expense in 2010 and 2011.
SBJCA also increases from $5,000 to $20,000 the maximum deduction for business start-up costs in 2010 and 2011.
There’s also a tax break for restaurant owners and small retailers who remodel or build new locations.
The listless economy is the result of bad credit and disastrous investments. The SBJCA, by putting the emphasis on small business lending, can help lift those burdens from the economy. Increased investment in the vibrant power of small business can haul us out of that mess far better than the government’s bank bailout.
This is a fine, straightforward program that can pay off significantly, as long as financial institutions do their part by joining in the small business lending fund established under the SBJCA. By putting their trust, and some of their money, into small businesses, they can help this great nation climb out of the recession that banks helped create with less diligent lending practices.
As President Obama said when he signed SBJCA, small businesses “are the anchors of our Main Streets. They are part of the promise of America–the idea that if you’ve got a dream and you’re willing to work hard, you can succeed.”
Advisors can do their part by assisting small business clients in deciding which of these provisions are appropriate for them and determining how best to benefit from them.