Capital gains and estate tax action keeps nearly $15 million in small business owners' pockets

Recent NFIB/Vermont victories:

Capital gains and estate tax action keeps nearly $15 million in small business owners' pockets
Last session, the Legislature passed an increase in the capital gains and estate taxes despite our vigorous opposition. These taxes discouraged business owners from taking risks, making new investments, expanding and creating new jobs. Bottom line: small business owners spend a lifetime paying sales, income, property and other taxes and fees; they should not be assessed an extra tax on their life’s work.

• Estate tax – beginning January 2010, the threshold was reduced from $3.5 million to $2 million; in other words the exemption is only on the first $2 million, a departure from the federal tax exemption.  This taxes small business owners who have paid income taxes year-in and year-out and will again when they pass their business to their heirs upon their death.

• Capital gains tax – taxing 40% (first $5,000 is exempt) , of the adjusted net capital gains income is taxable, but now the income derived from capital gains will be subject to the tax. This taxes small business owners who have continued to invest in their businesses so that one day they can retire.  There was a transition rate for farmers, loggers, and those over 70 until 2011, but this exemption goes away at the beginning of the new year.

This session, we made it clear that rolling these tax increases back was a top-priority.  We hosted a small business day in February, organized press events and asked members to take action by calling and writing their legislators. It worked! On the final day of the 2010 legislative session with the strong effort by Gov. Jim Douglas, legislative leaders acquiesced and handed Vermont’s small businesses a major victory.

On the capital gains side of the equation, Vermont’s small business owners over the next 6-months anticipated to transfer their businesses will save an approximate $3.2 million and next year are expected to save as much as $11 million. Nearly $2 million will be saved in Estate Tax payments; effective January 1, 2011 the threshold will be increased from $2 million to $2.75 million and then in 2012 the legislature agreed to relink the Vermont estate tax to the federal estate tax.  In other words, what they took away last year will be given back in 2012.