Yesterday, John Kerry [D-Mass.] and Olympia Snowe [R-Maine], chairman and ranking member of the U.S. Senate Committee on Small Business & Entrepreneurship, respectively, introduced the Invest in Small Business Act of 2007. Its aim: To strengthen an existing tax incentive in order to promote innovation and entrepreneurship.
Set forth during the midst of National Small Business Week, this bipartisan bill recognizes the contributions of 25.8 million small businesses nationwide that pump $918 billion into the U.S. economy annually. It encourages private investment in small firms by making several key changes to section 1202 of the Internal Revenue Code of 1986.
That section currently allows individual taxpayers to exclude 50 percent for capital gains from the sale of eligible small-business stock if they have held it for five years. Kerry and Snowe's proposed legislation increases the number of taxpayers who will be eligible for the exclusion, and makes it more attractive for investors to support small businesses by increasing the exclusion amount and decreasing the period they are required to hold the stock.
"Entrepreneurship is what keeps America on the cutting edge of technological innovation,” said Kerry. “Many of our largest and most successful corporations once started as small businesses with big ideas.
"Today, small businesses can repeat the role they played at the vanguard of the computer revolution by leading the nation in developing technologies to reduce carbon emissions and curb global climate change. America’s entrepreneurs are already are at the forefront of these industries, and we need to do everything we can to encourage investment in small businesses.”
“As the engine of our economy’s growth, it is vital that we help small businesses access the resources they need to expand, thrive and, most importantly, create jobs,” said Sen. Snowe [pictured above]. “By increasing the exclusion for small-business stock to 75 percent and taxing non-excluded proceeds at regular capital-gains rates, this legislation would take a critical step toward promoting investment in small businesses.
"In addition, by eliminating the tax on stock gains attributable to small businesses located in Empowerment Zones, this bill would help generate jobs in our nation’s most economically disadvantaged areas.”
Specifically, the Invest in Small Business Act of 2007 strengthens section 1202 provisions by:
* Increasing the exclusion from 50 percent to 75 percent;
* Decreasing the holding period from five to four years;
* Repealing the capital-gains exclusions as an AMT preference;
* Taxing the non-excluded portion of section 1202 gains at the regular capital-gains rate, which is currently 15 percent or 5 percent for individual taxpayers;
* Allowing corporations the benefits of section 1202 -- but, to be eligible, a corporation cannot hold more than 25 percent of the stock of a qualified small business;
* Providing a 100 percent exclusion for gains from the sale of small-business stock of corporations located in an Empowerment Zone; and
* Increasing the asset limitation from $50 million to $100 million.
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