The proposed “Small Business Cybersecurity Act of 2024” aims to amend the Internal Revenue Code of 1986 to provide a cybersecurity tax credit for small businesses. This proposed legislation reflects a growing recognition of the importance of cybersecurity, particularly for small businesses engaged in defense contracts, and seeks to address the financial challenges of meeting stringent security requirements. 

Under this proposed bill, eligible small businesses would be entitled to a 30% tax credit for qualified cybersecurity expenditures, capped at $50,000 annually. These expenditures include costs for Cybersecurity Maturity Model Certification (CMMC) assessments, joint surveillance assessments, and resolving Plans of Actions and Milestones (POA&Ms). The tax credit is further structured to ensure it is not cumulative; credits claimed in prior years will reduce the annual cap, encouraging prudent financial planning for cybersecurity investments. 

Eligibility for this proposed credit is restricted to businesses meeting specific criteria, such as being classified as a small business concern under the Small Business Act, employing no more than 50 employees, and being registered with the federal government as a prime contractor or subcontractor. These provisions focus the credit on businesses likely to benefit most from enhanced cybersecurity measures, particularly those navigating the demands of defense-related contracts. 

A distinguishing feature of the proposed legislation is its emphasis on inter-agency collaboration. The Internal Revenue Service, Department of Defense, and Small Business Administration are tasked with coordinating to ensure the tax credit is both practical and aligned with federal cybersecurity goals. Additionally, the bill requires annual reports to Congress, detailing the number of taxpayers expected to claim the credit and the average credit amount. This reporting framework is intended to provide oversight and measure the program's effectiveness. 

The proposed legislation also includes safeguards to prevent double benefits. Specifically, it prohibits businesses from deducting or claiming other credits for the same expenditures covered by the cybersecurity tax credit. Similarly, adjustments are required for any capital expenditures receiving the credit, ensuring compliance with broader tax code principles. 

Although the tax credit’s focus is financial relief, its implications go beyond cost management. By incentivizing compliance with robust cybersecurity protocols, the proposed legislation seeks to strengthen the overall cybersecurity infrastructure within the defense industrial base. The ripple effect could encourage innovation and higher security standards across multiple industries, addressing the growing threat landscape in a digital economy. 

The bill includes a termination date for the tax credit: January 1, 2032. This deadline underscores the temporary nature of the program and could prompt small businesses to prioritize cybersecurity investments during the eligibility window. However, the requirement for inter-agency coordination presents challenges that may influence the program's execution and effectiveness. 

This blog post summarizes a proposed bill for informational purposes only. The content may not reflect the final legislation and does not constitute legal advice. Consult a qualified professional for specific guidance.