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Washington Watch - March 18, 2009

Obama Unveils Small Biz Lending Initiative
President Barack Obama announced plans to aid the nation’s self-employed and micro-businesses, pledging up to $15 billion in loans.

“The collapse of these mortgage-backed securities and other complex financial instruments froze the credit markets, including the markets that help small businesses access loans to cover payroll, to purchase supplies, or to expand in ways that create new jobs,” he said.

The plan raises the guarantees on Small Business Administration (SBA) loans to 90 percent and removes some fees for borrowers and lenders. As a result, other lending institutions, such as community banks, will be freed up to provide loans for small businesses. Generally, the SBA guarantees $20 billion in loans each year, though it is projected to fall below $10 billion as a result of the credit squeeze.

“Now, this plan is the latest step – but by no means the last step – in our ongoing efforts to stabilize the financial markets on behalf of businesses and consumers. We'll be outlining further steps on behalf of small businesses in the weeks and months ahead. And we will continue to do whatever is necessary to lead this economy out of recession and lay the foundation for long-term prosperity,” he said.

The president’s economic recovery plan for small businesses also includes a reduction of the capital gains tax for investments and health care tax credits.

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Congress Moves To Eliminate Self-Employed Tax On Health Costs
Federal legislation introduced recently would level the playing field for over 20 million self-employed Americans by ending a significant double-digit disparity in taxes paid on health insurance that has contributed to the growing health care crisis. The Equity for Our Nation's Self-Employed Act, introduced in the House of Representatives by Reps. Ron Kind (D-WI), Wally Herger (R-CA), Suzanne M. Kosmas (D-Fla.) and David G. Reichert (R-WA) would eliminate an inequity in the tax code that inhibits the self-employed from receiving a full deduction for health insurance costs.

In addition to leveling the playing field for our nation's smallest businesses, this legislation would assist in making health care more affordable for millions of self-employed Americans who currently make up a substantial number of the working uninsured. Today, more than 60 percent of the 47 million uninsured Americans are from families working for a small business or headed by a self-employed individual. In a 2005 NASE study, more than two-thirds of micro-business owners said they are unable to afford health insurance for themselves or their employees, with costs cited as the chief reason.

Payment of Self-Employment Tax on Premiums: The tax code technicality resulting in the health-care cost inequality lies in the payment of self-employment tax on health insurance premiums. While corporations are able to deduct health insurance premiums as a business expense and to forego FICA (Social Security and Medicare) taxes on these expenses, sole proprietors are unable to deduct premiums and are required to pay an additional 15.3 percent self-employment tax on these costs.


Standard Home Office Deduction Legislation Introduced
Business owners who work out of an office in their homes could save an additional $1,500 on their taxes next year. Legislation introduced last week by Congressmen John M. McHugh (R- N.Y.) and Kurt Schrader (D-OR) would make it easier for home businesses to deduct office expenses by offering a $1,500 standard deduction to eligible taxpayers. The bill (H.R. 1509) would also require that the amount be indexed for inflation.

Many business owners cite complexity of the criteria to qualify as too cumbersome to follow; others cite a fear being audited as their reason to avoid the deduction. According to an NASE survey, three in five business owners who had never utilized the current home office deduction said the option of a standard deduction would encourage them to take it.

"The ability to choose a standard deduction would remove the top barriers for home business owners – being confused by the qualification criteria and being scared they’ll be red-flagged for an audit,” said Kristie Darien, executive director of the NASE legislative office. “Congress has taken an important step with this legislation that allows qualifying home-based businesses to more easily employ this tax benefit. Too many sole proprietors have shied away from taking the home office deduction despite being eligible for it."

The option of a $1,500 standard deduction would not preclude taxpayers currently qualifying for the home office deduction from continuing to itemize their expenses should they choose. The Home Office Deduction Simplification Act would simply offer a taxpayer-friendly way to take the deduction. Additionally, if passed by Congress, it would significantly minimize the paperwork and time spent on tax preparation for entrepreneurs managing their business out of their home.


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