The Small Business Jobs Act Has Big Changes in Mind

Between pandemic lockdowns, high inflation, and rising interest rates, small businesses have faced a variety of obstacles over the past few years. A new bill by House Republicans, the so-called Small Business Jobs Act, seeks to offer relief to American businesses by taking aim at some hot-button issues.

Read on to learn what small business owners need to know about the proposed legislation.

Rethinking taxes in the gig economy

In 2021, Congress passed a law that included stricter regulation on payments received through apps and e-commerce websites. Under the new legislation, those using PayPal, CashApp, Venmo, eBay, Etsy, and other services may have more paperwork to file come tax time. The Small Business Jobs Act would make some key changes to this rule and could save contractors a headache in future tax years.

Online transactions have been a thorn in the side of the IRS for years, which has resulted in various reporting rules over the years. In 2021, the old rule of reporting aggregate transactions of over $20,000 in a given year was replaced by a stricter rule, which reduced that reporting threshold to just $600. Since then, the new rule has caused widespread taxpayer confusion, leading to the IRS suspending the rule for the 2023 tax year and delaying implementation until 2026.

The Small Business Jobs Act would increase that reporting threshold to $5,000, and include an inflation adjustment in future years. If it passes, the bill would reduce reporting paperwork for payment processors and recipients alike.

It should be noted, however, that business income is always subject to tax, regardless of whether a payment processor reports it. Always consult with a tax expert for the best advice on your tax situation.

Increased immediate expensing

One way that small businesses save on taxes is by claiming deductions on business-critical expenses. In years past, buying a $20,000 photocopier meant that over the following years, your business could reduce its taxable income by some percentage of that cost for a few years down the road. In 2017, business owners were given more flexibility to claim deductions on equipment, which the Small Business Jobs Act seeks to expand on.

Prior to 2017, businesses were allowed to gradually recapture the cost of buildings, vehicles, machinery and more through a complex depreciation calculation known as MACRS. The Tax Cuts and Jobs Act introduced a provision allowing business owners to deduct 100% of certain business expenses through a Section 179 deduction. Allowing an immediate deduction on over $1 million of business purchases in a given year, business owners could greatly reduce or outright eliminate their taxable income in high expense years.

The proposed legislation would further increase the amount of business property expenses that can be deducted in a given year. The Small Business Jobs Act would more than double the current Section 179 limit to $2.5 million starting in 2024.

Business owners should be aware that deduction-claiming strategies can be complicated, and that maximizing your business' deductions should be left to the pros.

Introduction of Rural Opportunity Zones

Another provision of the 2017 Tax Cuts and Jobs Act introduced so-called Opportunity Zones, which encourage investment in low-income communities. With the goal of fostering job creation and economic prosperity in distressed communities, tax benefits are offered to taxpayers who invest in Qualified Opportunity Funds. In recent years, opportunity zone investments have amounted to nearly $50 billion.

The Small Business Jobs Act would expand the program, which often benefits urban areas, to rural communities throughout the country. These Rural Opportunity Zones would be limited to areas of persistent poverty in rural counties. Business owners in those communities may reap tax benefits should the bill pass, but should discuss the qualification requirements with a tax professional.

At its core, the Small Business Jobs Act looks to offer less restrictive tax-reporting requirements, more opportunities to claim business deductions, and a boost to economic development in rural communities. Whether the bill will pass is yet to be seen, but in a closely divided Congress, the bill could find bipartisan support. Until then, business owners should maximize their tax savings with the help of a qualified tax preparer.