Small Business Tax Cut Act

On March 21, House Majority Leader Eric Cantor (R-VA) introduced the “Small Business Tax Cut Act,” which would allow qualified small businesses (those with fewer than 500 employees) to claim a new 20% deduction. In general, the deduction, which would be similar to the Code Sec. 199 domestic production activities deduction (and would be coordinated with that deduction), would be equal 20% of the lesser of:

(1) qualified domestic business income (generally, domestic business gross receipts less cost of goods sold allocable to such receipts, less other expenses, losses or deductions allocable to such receipts); or(2) taxable income (without regard to the new deduction) for the tax year.

The new small business deduction couldn't exceed 50% of the greater of: (a) W-2 wages paid to non-owners of the business; or (2) W-2 wages paid to non-owner family members of direct owners, plus W-2 wages paid to 10%-or-less direct owners. In some cases, distributions paid to partners could be treated as W-2 wages.