The small business segment creates a lot of new jobs. Even though big business always demands the limelight, small businesses play their part in providing a support base to the national, state, and local economies. They are critical in providing the much-needed economic vitality, especially in traditional areas of commercial activity. Given their importance to the national economy, tax plans and reforms have targeted small businesses in terms of providing them various kinds of tax relief.

Most small businesses are sole proprietorships or limited partnerships. New legislation has reduced the amount of taxes that small businesses have to pay. Tax relief to small businesses has come through as relief on income tax returns, growth incentives, and reduction of taxes on dividends and capital gains.

The income tax reductions for small business owners have come from inclusion of more items under the 10 percent and 15 percent tax categories. So, more of the income will be taxed at these lower rates. Further, the 27 percent, 30 percent, and 35 percent tax rates were each reduced by 2 percentage points, with the highest tax rate being reduced from 38.6 to 35 percent. The death tax has been repealed until 2011, which benefits small owners from paying tax when they pass their businesses to their family members.

The Jobs and Growth Tax Relief Reconciliation Act of 2003, increased depreciation rates on qualified assets from 30 percent to 50 percent for the first year. Businesses are now allowed to deduct the full cost of an asset in the year that it's first put to service. This deduction, however, has a cap of $100,000, which is a four-fold increase from the earlier $25,000 limit.

Small businesses have received some tax relief through reductions in the taxes on dividends and capital gains. These changes have resulted in reducing the impact of double taxation that occurs when small business incomes are taxed both at the corporate and the individual levels. Tax relief for small businesses is critical to their operations, particularly with helping them tide over the tough initial phases of their business activities.