House Bill To Increase Small Business Tax Deduction

by Mike Godfrey, Tax-News.com, Washington

25 March 2009

Legislation has been introduced into the US House of Representatives to facilitate new business formation by increasing the maximum tax deduction for small business start-up expenses.

The Small Business Formation and Job Creation Act, introduced by Rep. Frank Kratovil, a Maryland Democrat, and Rep. Chris Lee, a New York Republican, will increase the maximum deduction for start-up expenses under Section 195 of the Internal Revenue Code to USD20,000.

Under the current tax code, the maximum deduction for business start-up expenses is limited to USD5,000 while additional expenses are left to be amortized over a longer period of time.

This temporary increase in the maximum deduction would apply in 2009, 2010, and 2011.

“Small business is the engine that is going to drive our economic recovery,” said Kratovil. "These entrepreneurs need encouragement and motivation to create jobs and spur innovation in these challenging times; giving them a start-up expense tax break will do exactly that. Instead of rewarding failing companies and executives who created this economic crisis, it’s time to focus on small business owners and families."

“There’s no question that the economic crisis has made it that much harder for newer small businesses to stay afloat,” said Lee. “This important bipartisan legislation will provide a much-needed boost to entrepreneurs by giving them an added incentive to invest in their ideas, create new jobs, and aid our economic recovery.”

The proposals have been welcomed by the National Federation of Independent Business (NFIB), a leading small business association.

"During difficult economic times, it's critically important that opportunities for entrepreneurs to start their own small businesses are maximized," said Susan Eckerly, senior vice president of federal public policy for the NFIB. "We should encourage and provide incentives for these risk takers to take the chance and start their own firms - something the current start-up tax deduction limit of USD5,000 fails to do."

"Most new small businesses face significant start-up costs, including advertising, obtaining licenses, permits and fees, paying rent, hiring business and financial consultants and providing employee training," observed Eckerly. "This increase in the start-up deduction allowance for new businesses will help new firms survive the challenging and often expensive first year of business."

Recommended