Americans for Tax Reform is happy to support Rep. David Kustoff’s (R-Tenn.) Small Business Investment Act, reintroduced yesterday for the 119th Congress.
The Small Business Investment Act would improve the capital gains rate exemption for qualified small business stock (QSBS). Currently, the tax code allows for individuals and pass-through entities to exempt up to 100 percent of gains made on the sale of qualified small business stock if it was acquired at issuance, and held for at least five years in a C corporation with aggregate gross assets of $50 million or less.
The bill would offer a tiered approach for investors to receive a capital gains exemption prior to five years of holding the stock. Up to 50 percent of capital gains could be excluded from the capital gains tax rate after 3 years; 75 percent of the gains to be excluded after 4 years, and then (keeping with current statute) 100 percent of the gains may be excluded after 5 years.
Convertible bonds, which are attractive to investors because they allow businesses to borrow at lower interest rates without diluting shareholder value, would also qualify under the QSBS exemption. This change could incentivize more investors to provide funding to small businesses.
The legislation would also expand the qualifications to include S-corporations, giving more entrepreneurs access to this essential funding.
The provisions of this bill will further encourage investors to capitalize new start-ups and small businesses that otherwise might not be able to attract the sufficient capital necessary for their survival.
ATR commends Rep. Kustoff’s efforts to promote capital formation for American entrepreneurs and small businesses.
Lawmakers should support and pass the Small Business Investment Act.
For more background on QSBS, click here.
