Senators Robert Menendez, D-N.J. and Pat Toomey, R-Pa., have introduced bipartisan legislation to help entrepreneurs start and grow a small business and comply with complex tax rules.
The Start Up Jobs and Innovation Act aims to make it easier for businesses to expand by permanently allowing companies to deduct the first $500,000 in equipment purchases. Without this provision, businesses would only be allowed to deduct a small portion of their costs in the first year, with the remaining amount deducted over a period of many years making it more expensive and difficult for a company to grow.
The bill would also permanently cut taxes for people who make long-term investments in U.S. small businesses, enabling them to attract more investment to create jobs and compete.
“I’m here with Senator Toomey to introduce this bill because I believe that investing in our small businesses is the smart thing to do for our communities and our economy,” Menendez said in a statement Wednesday. “Yet too often, our tax rules aren’t written with the understanding of the small business owner in mind. That’s why our bill will make it easier for small businesses to do their taxes, free up capital for investment and job creation, and allow small businesses to use the same tax preferences large firms have available for innovation.”
The legislation would remove a tax barrier that makes it more difficult to create a business by doubling the amount of startup costs entrepreneurs can deduct in the first year. Currently, companies can only deduct the first $5,000 in startup costs, and amounts above that have to be deducted over the course of 15 years.
The bill would also give high-tech small businesses the ability to use the same tax provisions that large companies have available for innovation. Under the bill, investors in research-intensive small companies would be able to deduct losses and receive credits.
In addition, the proposed legislation would ease tax compliance for small businesses by allowing more companies to use the simpler “cash accounting” method, giving them more time to focus on creating jobs and growing their business.
“I started a chain of restaurants in Allentown in 1990 with two of my brothers,” said Toomey. “We used our own savings to fund the startup costs and worked day and night and eventually created hundreds of jobs in the Allentown and Lancaster region. So I understand the unique struggles, uncertainties, and risks involved in starting one's own business. We can make it easier to be innovative. I am pleased to join with Sen. Menendez to propose a bill will do just that by freeing up the money and time small businesses have available to re-invest and hire more workers.”
The National Federation of Independent Business endorsed the legislation, as have several other organizations. “Senators Toomey and Menendez’s legislation makes several important changes to the tax code that our members in Pennsylvania enthusiastically support,” said Kevin Shivers, executive state director for the Pennsylvania chapter of the NFIB. “For most small businesses, the most important source financing is cash flow, which is closely tied to a small company’s overall tax burden. Section 179 business expensing provides small businesses an immediate source of capital recovery and improves cash flow. The Toomey-Menendez legislation provides a permanent level of business expensing that also is indexed to inflation and includes real property. Additionally, small companies would benefit from an expanded ability to use cash accounting for tax purposes and expanded deductions for start-up costs. These types of small business tax incentives will help simplify the tax code and help small businesses to grow and thrive.”
Besides the NFIB, a number of other organizations have also endorsed the bill, including the Pennsylvania Manufacturers Association, the National Association of Manufacturers, the Coalition of Small Business Innovators, the Biotechnology Industry Organization of New Jersey and the Biotechnology Industry Organization of Pennsylvania.