Small Business Investment Incentives


Among the small business incentives in the 2010 Tax Relief Act (the Act) signed into law last week by president Obama is a provision that increases incentives to invest directly in small businesses. Section 760 Act amends section 1202 of the Internal Revenue Code (the Code). The Code now provides for that if an investment is made in 2011 in stock of a qualified small business and the stock is held for five (5) years the gain is tax free. For periods prior to 2011, the Code section 1202 incentive was a fifty percent gain exclusion.

The budget scoring by the Joint Committee on Taxation states the budget effect to be $$40 million years 2011-2015 and $1,445 Billion between 2011-2020. Note should be taken that the budget effect estimated by the Joint Committee on Taxation includes effects of investments made in 2011 at 100% gain exclusion and at 50% gain exclusion for prior years. These estimates do not consider the offsetting effect on the growth of small business and jobs. The question is whether California should conform the Revenue and Taxation Code to create a similar small business incentive.

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