Sen. Landrieu Introduces Small Biz Tax Fairness BillNovember 6, 2013
Recently, Sen. Mary Landrieu (D-La.) introduced the Small Business Tax Fairness Act (S. 1498); legislation that will provide targeted tax relief to small businesses. Federal taxes are routinely ranked among the top issues facing small businesses and pose a huge and unique financial and administrative burden for small-business owners. According to the NSBA 2013 Taxation Survey, 74 percent report that federal taxes have a significant to moderate impact on the day-to-day operation of their business.
When asked in the NSBA survey to rate the most significant challenge posed by the federal tax code to their business, the majority (55 percent) picked administrative burdens while 45 percent said financial burdens. NSBA has endorsed S. 1498 as it will help spur business investment, increase cash flow and reduce tax complexity.
Specifically, the measure extends—through 2014—the Section 179 expensing provision from the Small Business Jobs Act that allows small businesses to immediately write-off up to $500,000 for tangible personal property and up to $250,000 for improvements to qualified real property including improvements to retail and restaurant property. Section 179 expensing is one of the most important provisions in the tax code to small businesses, as it simplifies tax accounting, aids cash flow and reduces the cost of capital for small firms. More than one in three NSBA members take advantage of this break as it encourages small businesses to invest in new equipment by letting them expense much of the cost up front, instead of depreciating it over time.
S. 1498 also provides tax equity to the nation’s self-employed businesses by expanding the deductibility of health insurance to apply to employment taxes. Self-employed individuals (including partners and LLC members), unlike large corporations, cannot fully deduct the cost of their health insurance as a business expense. This 15.3 percent tax that self-employed pay on their premiums amounts to $1,940 in extra taxes that only the self-employed pay. Health care costs remain a top concern for small business, and this provision helps the self-employed save money on their health care costs, thus freeing up their ability to invest in other expenses and investments.
While a typical business can deduct its business expenses in the year the expenses are paid, a start-up business is limited in the amount it can deduct. Under the 2010 Small Business Jobs Act law, taxpayers, whether they were individuals, corporations or partnerships, were permitted to write off up to $10,000 with a phase-out threshold of $60,000 in the first year of business. Unfortunately, this increased deduction was only temporary and expired in 2010. S. 1498 increases the deduction up to $10,000 for 2013 and 2014 offering an immediate incentive for someone with a new business idea to invest in starting up a new small business today.
Additionally, this bill grants much-needed relief to S corporations by increasing their ability to access capital. It does so by extending through 2014 the reduced built-in gains holding period from 10 years to five years for S corporations. When businesses convert from a C corporation to an S corporation, they have been required to hold their appreciated assets for up to a decade or else face a punitive level of double taxation.
Sen. Landrieu’s legislation is a step closer to enabling businesses to invest in new equipment, hire more workers and spend more money on research and development, which in turn will help strengthen our economy.