House Ways and Means Committee Chairman Sander Levin, D-Mich., has unveiled a draft of a new bill that would provide tax incentives to small businesses to spur job creation.

The bill includes a 100 percent exclusion of capital gains taxes for individual investments in small businesses, tax penalty relief for small businesses and an increase in the deduction for startup expenditures.

“Small businesses are an important engine of our economy and this bill combines a number of proposals to help them grow and free up resources to hire new workers,” said Levin in a statement. “This bill also extends effective financing measures like the Build America and Recovery Zone Bonds so that they can continue creating new jobs while making critical improvements to our communities.”

Under current law, Section 1202 of the Tax Code provides a 50 percent exclusion for gain from the sale of certain small business stock that is held for more than five years. Levin’s bill would temporarily increase the amount of the exclusion to 100 percent for qualifying stock acquired after March 15, 2010 and before Jan. 1, 2012.

The bill also would make the penalty for failing to disclose reportable transactions (including listed transactions) proportionate to the underlying tax savings. In addition, it would require the IRS Commissioner to report annually to the Ways and Means Committee and the Senate Finance Committee on penalties assessed, and enforcement actions taken, with respect to tax shelters.

The bill would also provide an exception to the “at-risk” rules for non-recourse loans that are guaranteed by the Small Business Administration. The passive activity loss rules would still apply to these expenses to prevent taxpayers from engaging in tax shelter transactions.

Under current law, taxpayers may deduct up to $5,000 in trade or business start-up expenditures. The amount that a business may deduct is reduced by the amount by which start-up expenditures exceed $50,000. For taxable years beginning in 2010 or 2011, the bill would increase the limit on the tax deduction for trade or business start-up expenditures from $5,000 to $20,000, and increase the threshold amount for reducing the limit to $75,000.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access