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Chief Worry For US Small Business Is Tax Administration

by Mike Godfrey,, Washington

06 May 2015

Small businesses' prime concerns about the US tax code are the challenges of achieving compliance, its complexity, and uncertainty, a Senate Small Business and Entrepreneur Committee field hearing heard on May 4.

Committee Chairman David Vitter (R – Louisiana) began his opening statement by pointing out that "small businesses provide the majority of job opportunities across the United States, but when you consider the burden of tax compliance that's placed on their shoulders, you may wonder how small businesses stay open at all."

"Small businesses in the US spend approximately six billion hours fulfilling their income tax obligations," he continued. "That doesn't even take into account state income taxes or sales tax that small business may have to handle. Over forty percent of small businesses spend 80 hours, and over a quarter of all small businesses now spend more than 120 hours a year, on tax compliance."

Vitter also stated that "the cost of compliance to small businesses is 70 percent higher than bigger firms. In fact, one-in-three small businesses spend more than USD10,000 just on federal tax administration, and half spend more than USD5,000. … A small business shouldn't have to hire an accountant in the first place to start and maintain a business."

He confirmed that, after listening to the concerns and issues of small businesses, he is preparing to introduce legislation that can reduce some of that burden. For example, he is proposing permanently extending increased Section 179 expensing (which allows small businesses to immediately deduct the cost of investments in property and qualifying equipment), increasing the limit for cash based accounting, and requiring the Internal Revenue Service (IRS) to consult small business representatives before passing new rules and regulations that may affect them.

In her testimony, Candy Forbes, representing the Livingstone Chamber of Commerce, was particularly scathing in her comments on Congress's treatment of Section 179, which small firms have reported as the number one tax deduction they use, but which suffers from the lack of a long-term extension as it is within the "tax extenders" list of policies.

"Congress is doing a disservice to American businesses when depreciation rules and the tax code in general are used as leverage in year-end negotiations," she argued. "Businesses want a level of predictability and stability in the rules under which they are asked to play. We need a long-term solution, not a year-end retroactive fix."

In addition, Forbes talked about "the knowledge gap between small and large businesses with regard to tax law. … Small business owners need to have better access to information from the IRS in simple terms about what activities can trigger audits, how to avoid penalties, and what type of tax forms should be filed for their particular business. The system seems to be designed to produce penalties and audits, rather than help small businesses do the right thing."

TAGS: individuals | compliance | tax | small business | business | proprietors | tax compliance | law | accounting | Internal Revenue Service (IRS) | tax authority | legislation | United States | regulation | penalties | individual income tax

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