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Noncorporate investors may exclude a percentage of the gain they realize on the sale or exchange of qualified small business stock. Generally, the stock must have been issued after a certain date by a qualified C corporation, and held by the taxpayer for more than five years.

Bush-Era Tax Cuts: Business-Specific Sunsets

  • 5/10/2012

Small business stock

Noncorporate investors may exclude a percentage of the gain they realize on the sale or exchange of qualified small business stock. Generally, the stock must have been issued after a certain date by a qualified C corporation, and held by the taxpayer for more than five years. Since 1993, a 50 percent exclusion of gain applies. The exclusion, however, is increased to 75 percent for stock acquired after February 17, 2009, and on or before September 27, 2010, and to 100 percent for stock acquired after September 27, 2010, and before January 1, 2012.

Under JGTRRA, 7 percent (rather than 42 percent) of the excluded gain is treated as a tax preference item subject to the alternate minimum tax for tax years beginning before January 1, 2011. The Tax Relief Act of 2010 extended this exclusion through 2012 and, at the 100 percent exclusion level, none of the gain will be subject to AMT.

Comment: To qualify as small business stock, the stock must be issued by a C corporation that invests 80 percent of its assets in the active conduct of a trade or business, and that has assets of $50 million or less when the stock is issued.

Employer-provided child care credit

The 2010 Tax Relief Act extended the credit for employer-provided child care facilities and services created by EGTRRA through 2012. The credit entitles a business to the sum of 25 percent of the qualified child care expenses and 10 percent of the qualified child resource and referral expenses incurred by the employer for the tax year. The maximum amount of the credit allowable is $150,000 in any given tax year.

Impact: The tax credit for employer-provided child care facilities will disappear under the sunset provision of EGTRRA (as extended by the 2010 Tax Relief Act) for tax years beginning after December 31, 2012. Impact: Employers that terminate child-care services may have to recapture a portion of the credit. While employers would be reluctant to eliminate child-care services, they could seek to save money by spending less, or by charging employees more for child-care services. They may be able to fund this more, at least partially, through a pre-tax dependent care spending account.

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