Regulations in Relation to Small Businesses

• The IRS small business forms aren’t overwhelming for big businesses, but for entrepreneurs “the regulations, taxes, and fees are very costly and subsequently discouraging” (opinionated post)
• Forms that small businesses have to fill out:
  • https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Forms-for-Partnerships

Highlights from the Small Business Jobs Act of 2010

(SBA-SBJA)

• Puts more capital in the hands of small businesses and entrepreneurs
  • SBA loan provisions were extended through 2010
  • Higher loan limits
• Permanently increased microloan limits from 35,000 to 50,000, helping more entrepreneurs with start-up costs and small business owners in underserved communities
  • More small businesses became eligible for SBA loans
• Increased alternate size standard to those with less than 15 million in net worth and 5 million in average net income

Jumpstart Our Business Startups “JOBS” Act (2012)

Amendments made regarding crowdfunding in October 2015

• “New rules and proposed amendments are designed to assist smaller companies with capital formation and provide investors with additional protections” (SEC)
• Raised the threshold for exemption for SEC registration
  • Went from 500 holders of record and total assets exceeding $1 million to either 2000 holders or 500 holders who are not accredited investors and total assets exceeding 10 million (NLR)
  • More companies are now exempt from registration requirements of the federal securities laws

Protecting Americans from Tax Hikes “PATH” Act (2015)

Qualified Small Business “QSB” Stock

• Tax break for taxpayers who invest in early stage or start-up companies
• Non-corporate taxpayers who “acquire QSB stock in a C-corporation at original issuance, hold such stock for more than 5 years, sell such stock at a gain, and meet certain other requirements” can now claim complete tax exclusion (JDS)
• Gain from the sale of the QSB stock will not be subject to capital gains tax
• Requirements
  • Corporation cannot be engaged in ineligible businesses
  • Gross assets must not exceed $50 million
  • For the taxpayer, the amount of gain that can be excluded is limited to the greater of $10 million or 10x the tax basis when the QSB stock was first acquired

S-Corporation Built-in Gains Tax

• Tax planning opportunity when acquiring a C-corporation with built-in gain assets
• S-corporations are not subject to entity-level taxation, so there is no double taxation, whereas C-corporations pay tax on sale of assets and then shareholders pay a second level of tax on dividends
• “To prevent avoidance of the entity-level tax applicable to a C-corporation, a corporation with appreciated assets that elects to convert from C to S-corporation status is taxed on a post-conversion sale of any such appreciated assets, to the extent of built-in-gain at the time of conversion, if the sale occurs within a prescribed period after conversion. The law initially set the period at 10 years, but the period was temporarily reduced to 7 and then 5 years during the economic downturn. The 5-year recognition period has been extended indefinitely. ” (JDS)

Prevents Tax Increases

• Provides small business tax relief, including increased small business expensing (Section 124)(PATH)
  • Permanently extends the small business expensing limitation and phase-out amounts
  • Expensing limitation increases from 25,000 to 500,000
  • Phase-out amounts increase from 200,000 to 2 million
• Offers incentives for innovation, including the research and development tax credit (Section 121) (PATH)
  • Permanently extends the R&D tax credit
  • Eligible small businesses (<$50 million in gross receipts) can claim the credit against AMT liability, and the credit can also be used by certain small businesses against the employer’s payroll tax liability