Press Room: Tax Release

March 05, 2012

President Obama’s Startup America Agenda Includes Key Tax Provisions

President Obama’s State of the Union Address included his Startup America Legislative Agenda (the Agenda), which calls for immigration visa reform to strengthen the American workforce and regulatory relief provisions to expand access to capital for start-ups and small businesses. Additionally, the Agenda calls for certain tax provisions to encourage start-ups and small businesses, which are discussed below.

Given the polarized makeup of Congress coupled with the fact that this is an election year, it is unclear whether any or all of the Agenda provisions will ultimately be enacted. The Agenda, nonetheless, sends a clear signal as to where the Administration plans to channel its legislative efforts during 2012.

In summary, the Agenda calls for the following tax provisions to encourage start-ups and small businesses:

  1. Expand and Make Permanent the Zero Capital Gains Rate for Qualified Small Business Stock (QSBS). The Agenda would make permanent the zero capital gains rate for QSBS that expired at the end of December 31, 2011. Additionally, a related “rollover” window reinvestment period provision under current law would be lengthened from 60 days to further encourage a tax efficient redeployment of capital from a successful exit of an investment in QSBS that meets a six month holding period (but not a five year holding period otherwise required to earn the zero capital gains rate).
     
  2. Payroll Tax Credit. The Agenda would provide a 10% payroll tax credit (capped at $500,000) for 2012 to encourage small businesses to grow their business and hire new employees.
     
  3. Extend 100% Depreciation Deduction. The Agenda would extend for one year the so-called “100% expensing provision” for qualified property acquired and placed in service before January 1, 2013. A corporate election to claim an additional alternative minimum tax (AMT) credit in lieu of the additional depreciation deduction for property placed in service in 2012 would be available, regardless of prior year elections made to claim the AMT credit in lieu of additional depreciation.
     
  4. Expand the Deduction for Start-up Expenses. The Agenda would permanently double the amount of start-up expenses that could be immediately deducted from $5,000 to $10,000 (with an increase of the phase-out from $50,000 to $60,000).