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Small Business 20% income tax deduction proposed

by | Mar 22, 2012 | Uncategorized

Cantor bill would give “small businesses” 20% domestic business income deduction
On March 21, House Majority Leader Eric Cantor (R-VA) introduced the “Small Business Tax Cut Act,” which would allow qualified small businesses (those with fewer than 500 employees) to claim a new 20% deduction. In general, the deduction, which would be similar to the Code Sec. 199 domestic production activities deduction (and would be coordinated with that deduction), would be equal 20% of the lesser of:

  1. qualified domestic business income (generally, domestic business gross receipts less cost of goods sold allocable to such receipts, less other expenses, losses or deductions allocable to such receipts); or
  2. taxable income (without regard to the new deduction) for the tax year.

The new small business deduction couldn’t exceed 50% of the greater of: (a) W-2 wages paid to non-owners of the business; or (2) W-2 wages paid to non-owner family members of direct owners, plus W-2 wages paid to 10%-or-less direct owners. In some cases, distributions paid to partners could be treated as W-2 wages. Gross receipts and W-2 wages taken into account under the new deduction could not be taken into account for Code Sec. 199 purposes. The bill, which would apply for the first tax year of the taxpayer beginning after Dec. 31, 2011, does not carry any offsets to pay for the small business deduction. This is from RIA Checkpoint.
Note: With the current Congress and White House, I do not expect this Bill to get any traction. The really interesting (and sneaky) part of the bill is limiting the deduction to 50% of wages paid to non-owner W-2 employees. Congress is doing anything possible to force businesses to treat independent contractors as employees so the government can get more taxes. RJC