Limited small biz capital gains tax break

Y'all saw the headline, right? On Tuesday, the House approved a tax incentives measure for small businesses under which capital gains taxes would be eliminated on some company investments.

Pay close attention to that word "some."

First, total exclusion from capital gains taxes would apply to certain small business stock purchased between March 15, 2010, and Jan. 1, 2012.

And in addition to the specific window, to qualify for the exclusion the stock must be held for at least five years.

But here's the biggest limitation. Because of their structure, most small businesses won't qualify for the tax break.

"The tax break only applies to investments in C corporations, a form of business organization that is rare among small businesses," writes Kent Hoover at Portfolio.com. "Most small firms are S corporations, partnerships, limited liability companies, or sole proprietorships — entities whose profits pass through to their owners for tax purposes. These small businesses won't benefit from this new tax break."

Oops!

On the heels of the proposed changes to S corp taxation in the tax extenders bill, this is not good news for many business owners.

The business tax breaks measure (H.R. 5486, the Small Business Jobs Tax Relief Act of 2010) is the companion piece to the loan incentives for small businesses bill (H.R. 5297, the Small Business Jobs and Credit Act) that the House passed this afternoon.

The two pieces of legislation now go to the Senate, which will consider them after it finishes with the tax extenders.

The Senate defeated the Republican substitute bill this afternoon and now will look at the newly-revised proposal from Senate Finance Chair Max Baucus. That amended amendment, however, is believed to still be short the necessary 60 votes.

So that means the business bills will get a look maybe in, say, September.

Related posts:

• Tax extenders saga continues
• Senate tax extender changes: homebuyer credit extension, easing S Corp taxes?
• Senate makes changes to tax extenders
• House passes extenders
• Carried interest slows extenders vote
• Tax extenders vote on Tuesday?
• Agreement reached on tax extenders
• Ways to pay for extenders grows
• House OKs extending tax breaks
• Tax break extenders on tap

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