Tax Incentives Expiring for Small Businesses

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The House Committee on Small Business held a hearing on how some expiring tax incentives, such as the research and development credit and clean energy incentives, would affect small businesses.

“Whether we're talking about home office deductions or bonus depreciation for equipment purchases, entrepreneurs rely on tax measures to expand their ventures,” said committee chair Rep. Nydia M. Velázquez, D-N.Y. “This is the case in both bad times and good times, but rings particularly true in today's economy. For small firms facing tightening credit and shrinking capital, incentives can make all the difference. In some instances, they are a deciding factor for things like hiring workers and making investments. That's why targeted relief is so important, and that's why we need to be reauthorizing measures that work for small firms.”

One of the expiring tax breaks is the five-year net operating loss carryback. Rachelle Bernstein, vice president and tax counsel of the National Retail Federation, testified about the impact on retailers that are struggling to survive. “In our current recession, where access to credit is so severely limited, the NOL carryback will provide an important source of capital to finance ongoing operations and retain employees,” she said

John Frenz, chief executive of Frenz & Schmidtknecht of Vincennes, Ind., and co-owner of two Montana Mike’s Steakhouses, testified on behalf of the National Restaurant Association. He too called for extension of the five-year NOL carryback, as well as other tax incentives, such as the 15-year depreciation schedule for leasehold improvements, restaurant improvements and new construction.

“The 15-year depreciation schedule has made significant capital available for restaurant owners to make capital expenditures with the tax savings,” he said. “Those capital expenditures translate into jobs in the rest of the economy. In addition, a faster, more accurate depreciation schedule has a direct impact on a restaurant’s bottom line.”

Keith Hall, national tax advisor of the National Association for the Self-Employed, testified in favor of Alternative Minimum Tax increased exemption amounts, bonus depreciation options, Section 179 limits, the sales tax deduction option, the first time home buyer’s credit, and the 15-year cost recovery for certain qualified leasehold improvements and five-year recovery for farming business machinery and equipment. While he acknowledged that Congress has continually patched the AMT, he believes it should be repealed altogether.

“Regardless of the net tax impact, the Alternative Minimum Tax System is still expensive to small business,” he said. “Even if the AMT system does not result in any additional tax, it still must be calculated.”

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