Tax Credits Don't Equal Cash Flow
First off, I didn’t read the entire American Jobs Act—it’s over 40 pages long and if you want to read it, there’s a link to the Act in the references section below. I must admit I tried to read it but there are so many “as applies to subsection 3111 of this act or that bill or this amendment" or “as allowed by the IRS tax code number 17000, subsection a, b and maybe f" that I really got bored—actually I got angry.
The average small business owner not only doesn’t have time to research these “acts" and “bills" and “subsections" they can’t find them--and even if they could, unless they’re lucky enough to be a certified public accountant versed in business tax law, they couldn’t understand them either.
I suppose along with Obamacare, (which I am overjoyed my spell checker now accepts without alerting me I’ve spelled something wrong), the AJA has a lot going on between those acts, bills, amendments and subsections, and it’s hard to decipher.
I’ll tell you here, tax credits will not help small business owners who are in dire need of the most important thing they really need: cash flow.
According to the Act, if an employer (small biz owner) qualifies by hiring specific workers under the Act—long term unemployed, for example, he or she will receive a tax credit of 6.2 percent. That’s nice, Mr. President, but that tax credit doesn’t come in the form of cash. It’s a deduction on a company’s tax return (for self-employed, too) and in the long run is really an allowed expense credit.
So, the small business owner determines his expenses for the year; and under payroll taxes, he can expect to add this new deduction to his other expense line items—it’s a number all right—on paper and it doesn’t put money in the bank or increase his sales revenues. Sure, the credit may offset his personal K-1 (partners share of profit or loss) that is attached to personal tax returns so he gets a little extra moola back, but is that helping what he needs right, right now? No folks, it’s not.
Today’s economy is so bad, and news reporters everywhere babble on and on about the high unemployment rate and how we need to get America back to work. That’s well and fine, but if the small business owner can’t sell his wares to people who have no jobs and no money to buy them, where are the revenues to hire those workers going to come from? I can tell you this, they aren’t hidden inside a tax credit.
It’s sort of a Catch-22 situation.