Tax Lawyer's Blog

I never thought it would come to this, but it actually feels surreal to hear that a tax cut bill has been introduced in Congress.

Senator Chuck Grassley (R-IA) the ranking member of the Senate Finance Committee has introduced a bill he says will strengthen small businesses by lowering their tax burden TaxNews.com reports:

Noting that small businesses create 70% of all new jobs in the United States, Grassley lamented that the Obama administration has done little so far to alleviate the tax burden they face.

“My bill will leave more money in the hands of small business owners so they can hire more workers, keep paying the salaries of their employees, and make additional investments that will lead to new jobs,” Grassley said.

“Unfortunately, the White House seems to see a lot of small business owners as a cash cow for other priorities and wants to raise their taxes. My point is, if we raise taxes on the one segment of the economy that creates the majority of new jobs, we’ll be in even worse economic shape than we are now,” he added.

Citing new data from the Joint Committee on Taxation, Grassley said that 55% of the tax from the higher rates proposed by President Obama will be borne by small business owners with income over $250,000. This he called “a conservative number,” because it doesn’t include flow-through business owners making between $200,000 and $250,000 who will also be hit with the 2010 budget’s proposed tax hikes.

Grassley’s bill is called the Small Business Tax Relief Act of 2009.

Here are its key provisions:

• § 179 Deduction: Increase the amount of capital expenditures that small businesses could expense from $250,000 to $500,000. This would encourage businesses to invest in new equipment.
• Tax Rate Reduction: Allow more small C corporations to benefit from the lower tax rates for the smallest C corporations.
• AMT Fix: Take the general business credits out of the Alternative Minimum Tax for those sole proprietorships, flow-throughs and non-publicly-traded C corporations with $50 million or less in annual gross receipts.
• Extend Credit Carryback Period: Extend the 1-year carryback for general business credits to a 5-year carryback for small businesses.
• Small Business Flow Through Deduction: Provide a 20% deduction for flow-through business income for small businesses, which are defined as flow-through entities with $50m or less in annual gross receipts.
• Relax Built-In Gain Rules on S Conversions: Lower the potential tax burden when a C corporation becomes an S corporation. Under current law, there is no tax on built-in gains of assets within a C corporation that converts to an S corporation if those assets with built-in gain are held for 10 years by the S corporation. The stimulus bill reduced this 10-year period down to 7 years for sales of assets with built-in gain that occur within 2009 and 2010. The Grassley bill reduces this time period to 5 years for all S corporations that have converted from a C corporation.
• Expansion of NOL Carryback Thresholds: Expand the net operating loss provision contained in the stimulus bill. Current law provides that net operating losses from any size business may be carried back 2 taxable years before the year that the loss arises and carried forward twenty years. The stimulus bill amended the carryback provision by expanding the carryback from 2 years to 5 years if a small business had gross receipts of $15m or less. The Grassley bill expands this $15m or less requirement so that small businesses with $50m or less in gross receipts can get the benefit of the 5-year net operating loss carryback.

Nice bill, but will the comedian vote for it?

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