Capital Gains Tax On Small Business Sale
December 2, 2004
By Srinidhi Goenka
A small business entity is an individual sole trader,
or a partner in a partnership firm, or a company that
conducts a small business. The new tax laws introduced
in 2003 are very good for business-owners. The capital
gains tax on small business sale has been reduced
which will allow businessmen to take advantage of
these new laws.
Earlier, the capital-gains tax on sales of small
business stock was at the rate of 14% provided that
the stock was held for a period of at least five years.
If the stock was held for a lesser time period, then
the capital gains tax would be applicable at the rate
of 20%. Small businessmen found this clause quite
unreasonable and difficult to cope with.
As a result, this law was further modified in the year 1997 when
a 'rollover' provision was made, wherein the business seller only
had to invest a certain amount of money in a small business in order
to qualify for the 14% capital gains tax rate. These rates were
obviously applicable only for C corporations whose assets were valued
at less than $50 million.
Small Business Sales - What Is Happening Today?
Today, the scene has changed even further. More liberal policies
have been made for small businesses in order to attract greater
investment in them. For example, there is a provision in the capital
gains tax which allows expenses on equipment up to $100,000. Earlier,
this amount was limited to $25,000 only. According to this condition,
a business firm can take full deductions from capital gains tax
provided they do not purchase equipment worth more than $400,000
in 2003.
Moreover, the sale of small businesses has also been facilitated
through better policies. The government is doing this so that business
owners can boost their bottom line. Several tax cuts were made permanent
in 2004 in consideration of small businessmen.
According to Bruce Josten, the executive vice president of the
Chamber of Commerce,
"These tax cuts have empowered small-business owners to create
more jobs, put more money into the hands of consumers and moved
this economy from recession to recovery in the shortest time possible….Small
businesses account for 75 percent of the net new jobs. Tax increases
hit them doubly hard because they drive up the cost of doing business
and cut into the money available to hire new workers. None of this
is good for consumers, and it's certainly not good for Americans
looking for jobs."
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