David Kirkpatrick

June 16, 2010

Some tax relief looming for small business

The tax relief package has comfortably passed the House and hopefully will finally make life a bit easier for startups and other small businesses.

From the link:

The bill, which would eliminate capital gains taxes on investments in small businesses, passed on a vote of 247-170.

It is a companion bill to legislation backed by President Barack Obama that the House is to consider on Wednesday. That bill would create a $30 billion fund to encourage community banks to lend to small businesses.

“Small businesses need capital to create jobs and lead our economic recovery and these bills contain important tax cuts and lending opportunities that will help give small business owners the resources and flexibility they need to help their businesses grow,” said House Ways and Means Committee Chairman Sander Levin.

The bill gives small businesses a bigger tax break on start up costs and creates a program to help small businesses struggling to repay loans.

February 5, 2010

White House looking to end LIFO

Ending last-in/first-out accounting would be a very, very bad idea and would punch businesses — particularly small businesses — in the gut at a time when a drastic tax hit is something no business needs. The economy is still rough sledding all around and unemployment isn’t abating. The Obama administration has been making good noises about helping Main Street. Ending LIFO would do anything but.

From the link:

House Ways and Means members crossed party lines in Feb. 3 budget hearings to criticize the Obama administration’s proposal to raise an additional $59 billion in tax revenues by eliminating firms’ ability to use the last-in, first-out accounting method.

“If we do this, if we end it, what’s going to happen is U.S. small businesses are going to take a big tax hit and their competitors overseas are going to have a terrific advantage over us in the marketplace,” Rep. Mike Thompson (D-Calif.) told Treasury Secretary Timothy Geithner. “There’re some industries that have to hold their inventory for a long time; this is a fair and reasonable way to recognize that and I would strongly urge you to go back and revisit that.”

The practice can reduce a business’s tax liability, particularly in times of rising inflation, because it takes into account the higher costs of replacing inventories. The LIFO method is especially important to companies that maintain large inventories over a period of years, such as wineries and distilleries that need to age their inventories. As a result, shifting to a first-in, first-out accounting practice would have the effect of giving those producers income on which they would have to pay taxes, even though the products they have put into inventory may not be available for sale for several years.