Small businesses have been called the backbone of the American economy, whether a business sells clothes from a corner boutique or manufactures vinyl siding for home-building projects. Yet owners of these enterprises share an enormous tax burden for their size.
The American Institute of CPAs, or AICPA, submitted written testimony to the U.S. House Small Business Committee that outlined several areas of tax reform needed with regards to small businesses. The organization stated these reforms were "crucial" when the group made recommendations to the congressional committee. The testimony was part of a larger topic presented April 15, 2015, entitled "Tax Reform: Ensuring that Main Street Isn’t Left Behind."
Each of the points of reform were based on the fact small businesses have trouble complying with current, cumbersome tax laws that owners do not have time to decipher. The alternative means hiring an accountant, and some entrepreneurs may not want to pay more money for those professional services.
The cash accounting method is much easier to implement than the accrual method. More small businesses, such as those that provide services, should be allowed to use the cash method regardless of how much money the business earns. This way, companies spend less time on accounting ledgers and more time making money and hiring more workers. Forcing companies to go to an accrual method after a certain threshold discourages growth.
The Internal Revenue Service should become more inclined to waive civil tax penalties for small businesses that demonstrate reasonable cause and good faith when attempting to comply with tax laws. Some business owners simply cannot understand the tax code. Instead of penalizing hard-working Americans, the IRS should show more leniency during an audit.
Tax laws and tax legislation should be made permanent, especially when it comes to section 179 as it pertains to equipment expenses. Businesses can deduct qualifying expenses to upgrade old equipment or purchase new machinery. Until 2015, the deduction covered expenses up to $500,000, but the 2015 rule reverts back to a $25,000 cap. Encouraging businesses to buy more machinery creates a business-to-business stimulus package that makes companies move forward with better production times, lower costs and higher-quality products.
Companies may have a hard enough time tracking receipts, expenses, sales and revenue over an entire year. Some owners make critical tax mistakes such as failing to account for depreciation, separating business funds and personal bank accounts and not paying taxes to the proper agencies. These mistakes may cost business owners thousands of dollars if not done properly. These errors make the case for reform even stronger.
Simplifying the tax code represents one of the best ways small businesses can improve their bottom lines, increase productivity, hire more workers and boost revenue. Congress must make this reform a top priority to keep the American economy moving forward instead of backward.
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