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Simpler Small Business Tax Code Is Under Discussion

Only one in ten small business owners file their taxes on their own, according to the IRS.

If you’re among the 10 percent of small business owners who do your own taxes, take heart as you pull your hair out getting your forms in order this month: A simpler tax code is another step closer, and provisions aimed at small business are included.

House Ways and Means Committee Chairman Dave Camp (R-MI) this week released a third “discussion draft” of the Tax Reform Act of 2013. This version includes language aimed at creating a simpler and fairer tax code for small businesses.

“Every dollar spent on complying with an overly complex, burdensome and broken tax code is a dollar that cannot be used for investment, hiring, and higher wages for American workers,” according to Camp’s statement. Camp also issued a Fact Sheet offering several reasons the tax code needs to be simplified, including that “Today’s tax code contains almost four million words,” and, “On average, more than one new tax provision has been added to the tax code each day, with nearly 4,500 changes in the last decade.”

Camp also cited IRS data that shows “business taxpayers face an average burden of about 23 hours and $420” to file their taxes. And he pointed to National Federation of Independent Business research that says tax compliance costs are 65 percent higher for small businesses than for big businesses. ”Tax rates as high as 44.6 percent are especially burdensome for a sector that has long been responsible for leading the nation out of economic downturns,” Camp stated.

The draft, he said, incorporates components of proposals advanced over the years by both Democrats and Republicans on the Committee. In particular, he said the draft includes proposals that would:

  • Spur investment in equipment needed to grow business operations by providing permanent expensing of investments and property under section 179 of the tax code;
  • Simplify tax and accounting practices by expanding the use of the simpler “cash accounting” method to businesses with gross receipts of $10 million or less;
  • Provide relief for start-up and organizational costs by establishing a unified deduction for these expenses; and
  • Make tax compliance easier for partners and S corporation shareholders by reordering and simplifying the due dates of tax returns for partners and S corporations.

The draft outlines and seeks feedback on two separate options for reform of tax rules governing S corporations and partnerships.

  • Option 1 improves the ability of S corporations to compete, grow and gain access to capital by revising and modernizing current tax rules affecting S corporations and partnerships.
  • Option 2 simplifies the tax treatment of non-publicly traded companies by repealing existing tax rules governing partnerships and S corporations and replacing those rules with a new unified pass-through regime.

The provisions would be effective for taxable years beginning after December 31, 2013.

Camp encouraged stakeholders to provide feedback to Committee staff and the Small Business/Pass Through Tax Reform Working Group by emailing tax.reform@mail.house.gov and including in the subject field “Discussion Draft 3: Comments regarding pass-through entities.”

Of course, you’ll want to wade through the 134-page document and 66 pages of accompanying “technical explanation” first, which might make you wonder what the legislators really mean by “simple.”

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