The Obama administration proposed permanently eliminating capital gains taxes on some types of small business investments held for over five years.
The White House announced the tax cut extension Monday as part of a group of proposals aimed at encouraging small business entrepreneurship. The capital gains exemption extends a provision of last year’s Small Business Jobs Act that is set to expire this December.
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 provides a 100-percent exclusion from tax for capital gains realized on the sale of certain small business stock held for more than five years. The amount of gain eligible for the exclusion is limited to the greater of $10 million or ten times the taxpayer’s basis in the stock. This provision applies to qualified small business stock issued after Dec. 31, 2010, and before Jan. 1, 2012. The administration’s fiscal year 2012 budget proposal would make this provision permanent, increasing private sector investment in small businesses.
“Entrepreneurs embody the promise of America: the belief that if you have a good idea and are willing to work hard and see it through, you can succeed in this country,” said Obama. “And in fulfilling this promise, entrepreneurs also play a critical role in expanding our economy and creating jobs. That’s why we're launching Startup America, a national campaign to help win the future by knocking down barriers in the path of men and women in every corner of this country hoping to take a chance, follow a dream, and start a business.”
Other proposals from the administration as part of its budget plan include an expansion of the New Markets Tax Credit, which aims to encourage more small businesses and entrepreneurs in disadvantaged communities. The Treasury Department plans to simplify the rules for small businesses to access up to $5 billion in tax credits for private investment in lower-income communities.
The Treasury Department will host a March 2011 conference to explore access to capital for small businesses. A broad range of options to help small businesses access the capital they need to expand and grow will be discussed at the conference, according to the White House, and more details on the conference will be released in the coming weeks.
The administration also highlighted a new Startup America initiative led by America Online co-founder Steve Case. Intel and IBM also announced new investments in small businesses, while Facebook will be hosting Startup Days events at cities across the U.S.
The Network for Teaching Entrepreneurship, a nonprofit that provides a first-class entrepreneurship education for at-risk high school students from low-income communities, is launching new programs supporting young entrepreneurs and their teachers. Ernst & Young LLP will honor NFTE youth entrepreneurs at regional Ernst & Young Entrepreneur of the Year Award galas across the country to bring attention to the next generation of young entrepreneurs.
The Small Business Administration will also direct $2 billion in existing guarantee authority over the next five years to match private sector investment funding for startups and small firms in underserved communities, as well as seed and early-stage investing in firms with high growth potential, through its Small Business Investment Company program.
Together, the SBA and the Department of Energy will boost their mentorship for cleantech startups, while the Veterans Administration is launching new training programs for veterans who want to start new businesses.
The Department of Commerce will expand the i6 Challenge to help foster the commercialization of clean technologies. The Commerce Department is also finalizing a plan to allow entrepreneurs to request faster review of their patents, an initiative that should lower patent pendency times overall and speed the deployment of new ideas to the marketplace.
11 Comments
Small businesses need help that will improve cash flow now. With the banks pulling lines of credit, and difficulty obtaining new financing, the working capital position of small businesses is a disaster. Large companys can access the bond markets for financing. Small companies cannot.
No working capital on the balance sheets of small corps, they just go belly up.
Regulator need to allow banks more options in structuring deals. They want all banks to carry debt in the 7% risk profile. What about the 10% to 14% risk profile group with restriction on CAPX and distributions and a 5 year term?
Offering tax breaks on the sale of qualified stock is nice, but people need benefits now so they can cash flow.
I also liked the points made that this is not the way companies are sold so this break will be used very little.
Can't run a company without cash flow.
Christopher Deaver, CPA
Posted by: PowerFisherman | February 3, 2011 2:25 PM
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Instead of headlining grabbing tax schemes that benefit few, how about proposing some real changes in the administrative burden and regulatory burden that small business faces everyday. Forms, this fee, that fee, this tax, that tax, permits, licenses, bureaucracy......let me and my clients use the resources spent complying with the morass of paperwork on investing and growing our small businesses. You want economic recovery and growth, then give me back the resources wasted on bureaucracy.
Posted by: rlrllp | February 2, 2011 9:11 AM
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A much more effective way of helping small businesses is to extend the SBA loan guarantee program and waiving the loan fees. This small business stock legislation is terribly insignificant and only enhanced with political rhetoric.
Posted by: wlwong | February 1, 2011 3:35 PM
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Look do you really think this provides no benefit to a small business? Do you understand basic taxes and how you form a business? Read the rules before you make comments that make no sense. He is trying to help. Under this provision you can sell your business years later and pay no tax. That is a start, not the best idea but at least something. Lets try adding government loans at a very low interest rate and possibly grants. That would be more helpful but I appreciate this initial first effort on the part of the Obama administration.
Posted by: Truth | February 1, 2011 3:20 PM
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While it is true that this proposed "permanent" extension is mostly just window dressing and clueless rhetoric, and most sales of small businesses are asset rather than stock sales, any tax break that could help small businesses is welcome. Will this actually help small business? Probably not. But hey, it's political rhetoric that makes it sound like they're actually doing something.
It seems that most politicians, especially on the national level, don't have a clue about small business, because they've never run one. Definitely the case with Obama. However, he's not clueless alone in Washington, and being clueless about small business isn't the exclusive provence of one political party either.
Posted by: bigk56 | February 1, 2011 10:25 AM
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It never ceases to amaze me how much these guys don't understand business deals. Most small businesses do not get sold by selling their stock. Asset sales and goodwill are the predominant way to sell a business. Plus the restrictive window he has put on this stuff. More clueless rhetoric. Obama please go away.
Posted by: jcpa | February 1, 2011 9:35 AM
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This whole charade is a scam just like all of his other ideas. Ever have anybody buy small business stock? They always buy assets. Wonder if assets are tax free too? My guess is their not.
Its a lot like the small business tax credit for health insurance. Just calculated one for a business with 19 employees and average salary of $40,000. Guess what? No credit. Was phased completely out. Another scam.
This guy has to go.
Posted by: MCS1957 | February 1, 2011 8:51 AM
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I wish everyone in government would quit using the term "permanent" when it comes to tax law. There is no permanence. Tax law is like paint. One color one day, a different color the next. It can always be changed and probably will be. That's what makes planning so much fun.
Posted by: doccpa | February 1, 2011 8:47 AM
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"My, what a professional comment to leave on an accounting site. Give me a break."
Anybody who believes he (Obama) has a capitalist bone in his body is a clueless. Most businessmen with 1/2 a brain know this. That's why the economy is what it is.
Worst I've seen in 35 years. My clients are dying out here.
Posted by: nomadw8 | February 1, 2011 8:12 AM
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To nomadw8: My, what a professional comment to leave on an accounting site. Give me a break.
Posted by: victheatre | February 1, 2011 7:26 AM
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Get that frigging commie out of office & maybe confidence will return.
Posted by: nomadw8 | February 1, 2011 7:22 AM
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