Congress attacks small business,
Lawmakers have proposed a retroactive tax increase in the $1.75 trillion reconciliation bill that will hurt small business owners, small business employees, and small business investors.
Background: Since 2010, Qualified Small Business Stock (QSBS) has received preferential tax treatment compared to stock in big businesses, because lawmakers understood that small businesses were the economic engine of our economy. Presidents Obama and Trump supported QSBS because it encouraged small business formation, investment, and hiring.
What lawmakers want to change: Under current law, people who sell QSBS get a 100% tax exclusion. Lawmakers in Congress have proposed eliminating the 100% benefit, including on stock that was acquired up to 12 years ago.
- Example: Someone invested $100,000 into a qualified small business in 2010. When the company is sold later this year, their gain is $500,000. Under the law today, they would pay no Federal tax on that sale. But if lawmakers pass their bill, they would pay an extra $84,400 in Federal taxes.
Look back: If people had known the rules would change, they would have made different decisions about how to structure their companies, compensate their employees, where to invest, and when to sell.
Look forward: if passed, holders of QSBS will pay billions in added taxes instead of getting the tax break they were promised:
- Fewer small businesses will be formed
- It will be harder for small businesses to compete for talent against big companies
- It will be harder for small businesses to raise money from investors
- Small businesses will owe billions more in taxes even as the economy struggles
Spot the trend: Small businesses are under-represented in Washington. Congress ignores them because they are fragmented and don’t have lobbyists.
If you care about small businesses, tell your Senators & Representatives to protect QSBS.
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