Yesterday afternoon, President Obama sent Congress a package containing small business tax relief measures in an effort to [insert generic economy boost/job raising/deficit reduction clause here].
The plan contains the following provisions [my comments in brackets]:
- Expand and make permanent a zero capital gains rate on small business investments. [Presumably, this would be in the form of a permanent increase to the 100% exclusion for gain from the sale of Section 1202 stock that expired on December 31, 2011. Since Section 1202 stock is required to be held for five years prior to sale, the earliest any benefit would be reaped from an extension to this provision would be 2017];
- Enact a new, 10 percent tax credit for hiring or increasing wages;
- Double to $10,000 from $5,000 the deductions a startup business could take [this would require an amendment to Section 195 — and perhaps to Section 248, which governs organizational costs — which currently allow a $5,000 deduction (phased out starting at $50,000 of total costs) with 15-year amortization on the remaining costs]; and
- Extend 100 percent first-year depreciation, for one year, for qualified property placed in service before Jan. 1, 2013 [this would require an extension of Section 168(k), which expired as of December 31, 2011, leaving 50% depreciation for 2012].
As you can see, none of these provisions — save for perhaps the final one — would make much of an impact on taxpayers’ 2012 tax bill, so unlike much of the President’s proposed tax reform discussed during his State of the Union Address, there’s actually a fighting chance these changes could get pushed through prior to the November elections.