Law Offices Of Connie Yi, PC

Bay Area Estate And Tax Planning Law Firm

SBA testifies before Congress regarding estate tax

On Behalf of | Jun 7, 2012 | Uncategorized |

The Small Business Administration was asked to testify before a Congressional sub-committee this week. The Small Business Committee of the House of Representatives is looking into the potential impact upon small business of changes to the estate tax, which is set to expire in Jan. 2013.

Many people may consider a small business the mom and pop store, or a small landscaping business. However, the SBA has a slightly larger definition. According to the SBA, a small business is one that is “independently owned and operated, is organized for profit, and is not dominant in its field.”

There are limits to revenue and number of employees to qualify as a small business. For example, a general construction company would qualify as a small business as long as its annual receipts are not over $13.5 to $17 million, depending on the type of construction.

The estate tax current exemption is set at $5 million and any amount higher than $5 million is taxed at 35 percent. In January the exemption would drop down to its previous level of $1 million with a 55 percent rate for estate taxes.

News sources indicated that the SBA argues that if the rate returns to its previous level, that small closely held businesses may have to sell assets to pay the estate tax. A chief financial officer testified that her father’s business would have to sell off parts of the business to pay an estate tax. However, the CFO’s father’s business has revenue of $40 million and 92 employees in three locations, so may be at the upper end of any representative sample.

A Certified Public Accountant also testified that as a practical matter, the $5 million exemption does not affect many people, but that returning to the previous level of $1 million would impact a far greater number of people.

The White House has proposed a $3.5 million exemption and a 35 percent estate tax rate. No matter what happens in January, it is a wise idea to consult with a legal tax professional for estate tax planning. Failing to plan could be costly.

Source:, “Get Started: SBA loan hearings, estate tax concern,” June 4, 2012