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Small Business Tax Proposals

Every year the President releases his proposed budget and every year the Treasury Department summarizes the tax provisions of the budget in its so-called “Green Book.”  For fiscal 2015, President Obama has proposed the following tax law changes that would affect small business (if enacted) in the following ways.

  • Extend Increased Expensing – Since 2007, the President annually has proposed increasing the ability of small businesses to aggressively write-off expenditures for certain qualifying property (i.e., depreciable tangible personal property used in an active trade or business, certain software and certain real property improvements).  Congress enacted these proposals, which continued through the end of 2013.  The President proposes making these incentives permanent after 2013. If enacted, the proposal would allow businesses to continue to expense up to $500,000 for qualifying property.
  • Eliminate Capital Gains on Small Business Stock – In 2010, the tax law was changed to allow non-corporate taxpayers to exclude 100% of capital gains on qualifying small business stock, but the provision expired in 2013, leaving taxpayers with a reduced 50% exclusion still available for taxpayers.  The President proposes making the 100% exclusion permanent and eliminating the alternative minimum tax preference for excluded gains.
  • Increase Ability to Write-off Start-up Costs – Currently, a taxpayer may elect to deduct up to $5,000 incurred for start-up costs and organizational expenditures in forming a new, active business.  This amount is phased out as such costs and expenditures exceed $50,000.  Any other start-up or organizational costs and expenditures must be written off over 180 months.  The President proposes to permanently allow taxpayers to deduct up to $20,000 in start-up and organizational costs, with the balance being deducted ratably over 180 months.  The $20,000 threshold would be reduced as expenditures exceed $120,000.
  • Expand and Simplify Tax Credit for Employer Contributions to Employee Health Insurance – Under current law, small employers (i.e., no more than 25 FTE employees whose employees’ wages average no more than $50,000 per year) generally can claim up to a 50% tax credit for health insurance purchased through an Affordable Insurance Exchange for three consecutive years, limited by the average premium for the small group market in the rating area in which the employee enrolls for coverage and if certain requirements are met.  The President’s proposal, among other things, would expand the group of employers to include employers with up to 50 FTE’s, but would begin phase-out at 20 FTE’s.
  • Other Incentives – The President proposes (1) modifying and extending permanently the new markets tax credit for qualified community development entities, (2) restructuring assistance to New York City and providing tax incentives for transportation infrastructure improvements in New York State and New York City, (3) enacting various changes to the low-income housing credit incentives.

My next blog will highlight proposals to change the estate, gift and generation skipping tax provisions.

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