Although nobody is predicting a quick legislative fix to the problems facing small business, there are currently three bills before Congress that could help. In fact, there is some thinking that we might see some legislation to aid small business before year's end, despite the fact that we're in an election year.
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"The biggest thing right now is the bipartisan Startup Act 2.0," said Dean Zerbe, national managing director at alliantgroup and former senior counsel and tax counsel to the Senate Finance Committee.
Startup Act 2.0, introduced by Senators Chris Coons, D-Del., Marco Rubio, R-Fla., Mark Warner, D-Va., and Jerry Moran, R-Kan., "provides startups the tools to grow and create jobs," said Zerbe.
Among its provisions is a refundable research and development tax credit for startups less than five years old with less than $5 million in annual receipts, designed to allow startups to offset payroll tax liability. Another provision would make permanent the exemption of capital gains taxes on the sale of startup stock held for at least five years, so investors can provide financial stability at a critical juncture of firm growth, according to Zerbe.
The act would create a new visa for U.S.-educated foreign students who graduate with a Master's or Ph.D in science, technology, engineering or mathematics. Under the program, such students would be able to receive a green card and stay in the U.S.
Another legislative effort for small business is the Small Business Taxpayer Bill of Rights Act, introduced by Sen. John Cornyn, R-Tex., in April, Zerbe said. It would lower compliance burdens for taxpayers, strengthen taxpayer protections, compensate taxpayers for Internal Revenue Service abuses, and improve taxpayer access to the Tax Court. "It has some good ideas that will be considered down the road," said Zerbe.
Although legislation might be forthcoming in the months ahead, "The safest bet is that we won't see anything before the elections," he said. "We may get to a point just before the elections, like in 2010, where members need to take something home to show they've been thinking about small business."
"It's clear that [House Ways and Means Committee] Chairman [Dave] Camp, [R-Mich.], understands that we need tax reform that helps not only corporations but small and medium-sized business," Zerbe said. "My worry was that it would be all about large corporations, that small business would be forgotten, but Chairman Camp is very focused on not letting that happen."
HOPE FOR EXTENDERS?
Another piece of legislation, S. 2050, has perhaps the best chance of seeing daylight before year's end. Sponsored by Olympia Snowe, R-Maine, and Mary Landrieu, D-La., it is titled the Small Business Tax Extenders Act of 2012. It amends a number of provisions of the Creating Small Business Jobs Act of 2010.
"It's the most important of the pending legislation," said Chris Whitcomb, tax counsel at the National Federation of Independent Business. "It extends a number of tax provisions that have expired or that will expire at the end of the year. It would give help to small business, especially regarding tax complexity and cash flow, and it would help spur business investment."
Among other provisions, it would extend Code Section 179 bonus depreciation to 100 percent, and increase it from its current $139,000 level to the 2011 amount of $500,000, according to Whitcomb. "At the end of the year, if Congress doesn't extend the amount, it will drop to $25,000," he said.
Another provision of S. 2050 would provide parity for self-employed health care costs for small businesses, he observed. "It saves them money by allowing them to deduct health insurance from their self-employment tax. It gives them parity with larger businesses."
The bill reduces the time that an S corporation converting from a C corporation has to hold on to assets to avoid the built-in gains tax. "It's important for a small business that wants to organize as an S corporation. It would reduce the normal 10-year holding period, but only for another year," Whitcomb explained.
The legislation would provide an increase in the deduction for startup costs such as advertising, legal fees, rent and employee training, and would allow new businesses to put money back into the concern more quickly, Whitcomb noted. "This proposal, likewise, would only be good for a year," he said.
The exclusion of gain on the sale of small-business stock is another provision that could help small business, according to Greg Brown, tax partner at Sensiba San Filippo LLP. "The provisions in the extenders bill might pass this year because people are familiar with them, but they raise the question of who or how they will be paid for, and if they're not paid for, what will that do to the deficit?"
"Predicting tax legislative changes in an election year is kind of a jump ball," said Brown. "There are lots of things on the table, and it would be nice to have some definitive direction prior to the end of the 2012 calendar year. Whether it will happen later in 2012 or sometime in 2013 with potential retroactive treatment back to the beginning of the year is difficult to predict. The congressional elections may impact what happens legislatively as well."
"The common understanding is that there will be no significant legislation prior to the election," said Richard Croghan, senior tax partner at the San Francisco office of Moss Adams LLP. "There's also been a lot of discussion on tax reform. This might put a further damper on anything happening in this session of Congress."
"All these things are part of what's wrong with the tax system," said Roger Harris, president of Padgett Business Services. "Fix this, extend that, incentify this - all directed to change or extend or deal with short-term problems. But while any of these bills may provide a short-term benefit or savings or incentive to do something, it still doesn't provide a solution for the long term. Give me predictability into the future so I can make permanent plans."
"Everything expires, and when it gets close to the expiration date it becomes a fight to see if it will last," he said. "It's very difficult to plan for small business and individuals, because when you look at everything that's set to expire at the end of this year and the likelihood that nothing will get done until after the election, even then you don't know what will be done because we don't know how the election will turn out."
"While I commend everyone for offering something to help small business, the best thing to do is give them consistency and predictability," he said. "Consistency and predictability will lead to simplification."