Exclusion of Gain on the Sale of Certain Small Business Stock

Good news for individuals who invest in small businesses; you can now get an extra tax incentive!

As part of the American Recovery and Reinvestment Act (ARRA), investors in qualified small business stock can exclude 75 percent of the gain when they sell their stock. You usually can exclude up to 50% of your gain from your income from the sale or trade of qualified small business stock. See http://www.irs.gov/pub/irs-pdf/p550.pdf for more. This exclusion applies only if the qualified small business stock is acquired after Feb. 17, 2009 and before Jan. 1, 2011, and held for more than five years. In most cases, the exclusion rate for previously-acquired stock remains at 50 percent. The remaining gain will be taxed at a lower rate than what generally applies to one’s income. These lower rates are called the maximum capital gain rates.

So, how do you know if you are eligible for the tax incentive? In order to know whether it applies to you, you need to understand how the IRS defines small business and small business stock.

Description of qualified "small business": To qualify as a small business for the exclusion

1. The stock must be in a C corporation
2. The corporation’s gross assets cannot have exceeded $50 million when the stock was issued
3. The corporation, including all “over 50-percent-owned” subsidiaries, cannot have gross assets that exceed $50 million. This includes cash, the value of contributed property, and the bases of other assets, without regard for short-term debt.

As an eligible corporation, you must submit information regarding your corporation’s aggregate gross assets to the Secretary of the Treasury and to your stockholders.

If you are an investor, talk to your CPA or tax attorney to make sure you qualify for this tax break. Hopefully this new incentive will help you out next tax season. I wish everyone success in their investing adventures!

Small Businesses Get a Boost from Nonprofit Lenders

I am a huge proponent of people starting their own business—it is the American Dream to be successful at your own business!! Thank goodness that our government is focused on making it easier for small businesses to acquire loans. Community development financial institutions or CDFIs are certified nonprofit banks, credit unions, funds and venture capitalists which have been set up by the government to offer loans in low income and under-served urban and rural areas.

A Klipinger.com article explains how CDIFs can be more flexible. Read on!

IRS Spending More Time Auditing Small Businesses

Syracuse University's Transactional Records Access Clearinghouse (TRAC) highlights an upsetting fact in a new report. As if April 15 isn’t stressful enough for small-business owners, over the last five years, the Internal Revenue Service has increased the hours it spends auditing small businesses with less than $10 million in assets, by 30%, while in the mean time reducing the time it spends auditing large corporations with $250 million or more in assets by 33%. During the same period, audit hours devoted to mid-size corporations ($10 million to $250 million in assets) grew by 13%.

The author of this article on Forbes.com, Dean Zerbe, says he has “just scratched the surface of this insightful report, which should be available to the general public Monday morning, [April 19th, 2010] at TRACs website."

Read Dean Zerbe’s full article about this audit increase here: IRS Audits Small Biz More, Big Guys Less Forbes.com.

What a Recession Means for Your Business

I know many small business owners are feeling the effects of the recession. Business is most likely slow or perhaps even non-existent. It’s difficult, but I want to congratulate you for doing what it takes to own your own business in the first place and for taking the risk of capturing your piece of the American Dream. Here are a few ways the recession may be affecting your business and some measures you can take right now to help keep your business afloat.

Maybe your sales are down, and once that happens, then it doesn’t take long for profits follow. Well, one way to stay afloat is to lower your profits in an attempt to achieve higher sales figures. The other way would be to spend more on marketing and advertising while keeping your profit margins. Yes, your profit figures will lower, however, you would be increasing your presence in the market which could make you the first to reap the benefits as soon as the economy emerges from the recession.

So just because you need to cut expenses, cutting marketing would be the worst idea. Have you tried marketing within social media websites? Many sites that allow you to post status updates such as Facebook, Twitter, LinkedIn and Myspace are free way to advertise! Create a Fan Page for your business within Facebook and let people know what you do. You only need to spend a few minutes a day updating your status, inviting people to “fan” you or perhaps offer a coupon for followers. Go to business chamber events or other networking events to find more people to “follow” you. By meeting people and gaining their friendship and trust, they will know who to call when someone is looking for your type of business.

Your monthly expenses are probably increasing when a recession accompanies high inflation. This could eat into your savings and you may start to face financial problems.
Avoid unnecessary expenses and attend only to those expenses related to your business, evaluating them on a priority basis.

More business advice, some adapted from Business Recession: What a Recession Means for Your Small Business, an article on MoreBusniess.com:

Learn to rotate your inventory faster so your profits can increase instead of maintaining a large inventory. Use the latest technology available to keep track of your inventory. Dispose of all your slow moving products through “fire sales” if necessary. A fire sale is the sale of goods at extremely discounted prices, typically when the seller faces bankruptcy or other impending distress.

Get familiar with “Just in Time” methods to maintain your stock and delivery schedules. And last, but not least, don’t make the mistake of assuming demand for everything in a recession goes down. Maybe you have to switch a product out for one this is selling now.

Landrieu, Snowe Introduce Bill to Boost Small Business Contracts

From MSNMoney.com:

U.S. Senate Committee on Small Business and Entrepreneurship Chair, Mary L. Landrieu, D-La., and Ranking Member Olympia J. Snowe, R-Maine, today introduced a bill to modernize and strengthen the Small Business Administration's government contracting programs to help increase small business sales and create American jobs.

"Government contracts are perhaps one of the easiest and most inexpensive ways the government can help immediately increase sales for America's entrepreneurs, giving them the tools they need to keep our economy strong and create jobs," Sen. Landrieu said. "These contracting opportunities represent job creation for small businesses in a way that is unique. When large businesses get new work they typically spread that work among existing employees. When small businesses get these contracts they must staff up to meet the increased demand. By increasing contracts to small businesses by just 1 percent, we can create more than 100,000 new jobs - and today, we need those jobs more than ever."

"Federal contracting opportunities have served as a vital tool for American small businesses, helping them to grow, expand, and hire," said Ranking Member Snowe. "Yet the ability of these companies to earn Federal contracts is frequently stunted by the egregious and repeated failure of Federal agencies to meet their statutory 23-percent small business 'goaling' requirements. Our bill, which is based on legislation I originally introduced as Chair of this Committee in the 109th Congress, will endow the SBA with additional and improved instruments to remedy this consistent underperformance and meet the myriad demands of an ever-changing 21st century contracting environment."

Report: Ohio Tax Climate In Top 10 For Small Biz

Ohio has become one of the top 10 best places to run a small business in the US, claims the Dayton Business Journal. You can find a snippet of their post below, but the full article can be read here.

Ohio has climbed into the top 10 of an annual ranking of states with tax climates a business advocacy group considers friendly to small companies and entrepreneurs.

The Small Business and Entrepreneurship Council in its Business Tax Index 2009 ranked the state 10th based on 16 various tax measures combined into a single score. Those measures include a state’s top personal income tax rate and capital gains tax rate along with its sales, unemployment, gasoline and property taxes.

Ohio was ranked 14th on the council’s list a year ago.

Topping the list this year was South Dakota, followed by Nevada, Wyoming, Washington and Texas. The study considered the District of Columbia’s tax climate the unfriendliest to small business. It was followed by New Jersey, Minnesota, Maine, California and New York state.

Ohio fared best in the report’s look at states’ top corporate capital gains tax rates and corporate income tax rates, ranking sixth in both measures. A breakdown of states’ gasoline taxes was the state’s worst showing, Ohio ranking in the bottom 20 for its levy of 28 cents a gallon.