Small business has always been the engine of employment and economic growth. There are a number of special provisions in the tax law favoring small business. One of these is Code Section 1202 of the tax laws provides for incentives to invest in small businesses. These incentives were enhanced by The Recovery Act. Prior to these changes you could have excluded 50% of the qualifying gain on investments you made in closely held businesses that met the requirements of the tax law. Generally, the business must be a regular corporation (a "C" corporation in tax jargon) and have gross assets of $50M or less. The 50% exclusion coupled with 28% tax rate meant a maximum tax of 14% (ignoring AMT). The new law increased the exclusion to 75% so that on the effective tax rate on the sale of stock in a qualifying small business would only be about 7% (ignoring AMT). If that isn't enough tax benefit you can even roll over gains by reinvesting them into another qualifying small business and deferring tax on the gain you cannot exclude.
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