August 16, 2013

Legislation could provide incentive for small businesses investments

Legislation has been introduced by state Senator Ted Lieu, a Torrance Democrat that would allow taxpayer to defer all the profits from selling certain kinds of small business stock.

According to a report in the Sacramento Business Journal, Senate Bill 209, would provide a 38 percent deduction or a deferral of all of the profits made from selling qualified small business stock. This is defined as shares issued by ā€œCā€ corporations with gross assets of less than $50 million and they must do at least 80 percent of their business in specific industries.

The tax deduction is intended to encourage investment in startup corporations looking for venture capital. The proposed tax break is generous but not unprecidented. Not long ago, California allowed investors to deduct 50 percent of income made from selling qualified small business stock from state taxes, but a court decision rules that this tax deduction discriminated against certain types of investments.

This resulted in some companies being expected to pay retroactive taxes, however the Franchise Tax Board has decided to not enforce this pending legislation to address the issue.

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