TAX NEWS - 2010

US Tax: More Tax Breaks Aimed At Small US Firms

US Senate Finance Committee Chairman Max Baucus (D - Montana) has released details of new legislation that will provide additional tax incentives for small firms and help them to access capital for investment.

Commenting on the Small Business Jobs Bill, Baucus said that the legislation would "promote entrepreneurship and investment in small businesses and provide small businesses with the vital access to capital they need to create jobs."

"It is time to turn our attention to the small businesses and entrepreneurs to get Americans back to work," said Senate Committee on Small Business and Entrepreneurship Chair Mary Landrieu (D - Louisiana), who helped Baucus to craft the bill. "By providing some cost-effective and commonsense changes to lending, contracting and technical assistance programs, we can build on successful programs implemented in the Recovery Act to help small businesses keep their doors open."

The legislation seeks to encourage investment in small businesses by allowing investors to exclude the gains from the sale of certain small business stock from their income for tax purposes if the stock is held for more than five years. The bill would also reduce the tax burden for small businesses by allowing them to carry back general business tax credits to offset their tax burdens from the previous five years. Additionally, small businesses would be able to count the general business credits against the Alternative Minimum Tax.

Another section of the bill would permit taxpayers to write off more of the cost of purchases for their business, such as equipment and machinery, in the year the purchase is made, and increase the types of purchases that would qualify for special expensing to include some types of real property, such as leasehold, retail and restaurant improvements.

Other proposals offered in the bill would double the amount of start-up expenditures that may be deducted by someone starting a small business, and allow self-employed individuals to deduct health insurance costs for tax purposes.

Small firms would also be spared from paying excessive penalties associated with investments in tax shelters which were originally targeted at large corporations and wealthy individuals.

The bill is offset by a number of revenue-raising provisions, including a requirement for persons receiving rental income to file information returns to the Internal Revenue Service (IRS), and a stipulation that service providers must report payments of USD600 or more for rental property expenses in any one year. These measures are expected to boost revenues by USD2.5bn. The bill would also increase penalties for failure to file general information returns with the IRS.