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Proof “Build Back Better Act” Greatly Hurts Small Businesses

Biden Build Back Better Act

The President’s proposed “Build Back Better Act” is currently being hotly debated by the House of Representatives and a proposal is likely to go to the Senate this week. One element of the tax legislation being proposed is of grave concern to small businesses because it wouls severly curtail the capital gains tax exemption for Qualified Small Business Stock(“QSBS”) that currently exists in Section 1202 of the tax code.

For a qualified business, investment in their stock currently benefits from 100% exclusion of capital gains tax on gains of up to the greater of 10M or 10X your cost if the stock is held for at least 5 years. This incentive is extremely valuable to entrepreneurs, key employees, and investors, and serves to stimulate support of early-statge ventuers and small businesses that by many measures generate all new net jobs in this country.

The new legislation would reduce the exemption to 50% from 100% and apply the alternative minimum tax that also is currently excluded for tax filers with average gross income over $400,000.

One particular punitive aspect to the change is that this would apply to all transactions after Septembr 13, 2021, even though the investments could have been made many years ago under the assumption that gains would be excluded.

All small businesses are encouraged to send immediately to your elected officials to help preserve the incentives to start, build and invest in new businesses. The Angel Capital Association (ACA) has submitted this notice and letter to TaxConnections. They ask if we would distribute this information to as many people as possible.

Here is a letter already written to send to your Representative.

Write Your Representive Today. It is our understanding from research that faxing your letter to their offices ensures your letter will be received.

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One thought on “Proof “Build Back Better Act” Greatly Hurts Small Businesses

  1. This is not a concern t o most small businesses because they do not operate as C corps. And all C corps don’t qualify for 1202 treatment because the definition excludes most service businesses for example. It is odd to change the law for past investments. Just wanted to clarify that this is not a concern to probably 90% of small businesses.

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