Small businesses have been dealing with the ever-increasingly complex tax code for years. MBA's with years of tax preparation experience have found it necessary to hire tax consultants to do their business taxes to avoid violating a new or changed regulation.
With a new administration in effect, the House Small Business Committee Chairman Rep. Steve Chabot invited members of the small business community to Washington D.C. to discuss concerns they would like the new administration to address.
Small business owners, including Tribute President Tim Reynolds, told the House Small Business Committee this week that provisions in the current tax code which penalize saving and risk-taking represent the biggest barrier to American entrepreneurship.
Tim Reynolds was also asked by CNBC's Kate Rogers to discuss the regulatory burden on small business in the U.S. in this episode of the Executive Edge.
As a past chair of the National Small Business Association, Tim Reynolds testified before the February 15th House Small Business Committee on tax reform. The hearing, “Start-ups Stalling? The Tax Code as a Barrier to Entrepreneurship” focused on the overwhelming complexity of the federal Tax Code how the tax burden is a barrier to business creation and growth.
“Over the past 30 years, the Tax Code has become full of contradictory rules with unclear policy objectives that have resulted in both unintended consequences and unrealized intended consequences,” stated Reynolds. “It’s a huge drain on small businesses like mine—we pay accountants more than $14,000 each year to prepare our taxes.”
Reynolds went on to describe one audit his company endured during which the initial auditor did not understand certain revenue deferral rules. After multiple appeals, Mr. Reynolds’ firm was finally referred to a supervisor, who ultimately agreed with his company’s interpretation of the rules.
Tax complexity is so high that, in some cases, even the IRS does not know how to interpret the rules. According to the NSBA 2016 Mid-Year Economic Report, the administrative burden of the Tax Code is notably greater than the actual financial burden.
Nearly half of small businesses spend more than 40 hours per year to comply with federal taxes, and nearly one-in-three spend more than 80 hours. Taxes are so complex, 85 percent of small firms are forced to pay an external accountant or practitioner.
“The Tax Code is unfair to small businesses, biased against savings and investment, and impossibly complex,” Reynolds concluded. “Efforts to reduce the regulatory and administrative burdens on small businesses must focus on overall simplification, eliminating inequities within the Tax Code, and enhancing taxpayer education and outreach.”
Chabot stated that in the coming months Congress will have a once-in-a-generation opportunity to pass comprehensive tax reform, the likes of which we have not seen since Ronald Reagan’s historic tax reforms in the 1980s. Small business owners are waiting and ready.
Tribute, Inc. is a provider of business management software for hydraulic, pneumatic, process control and automation distributors who provide design and fabrication services. Click for more information about TrulinX, our Windows-based software designed specifically for complex fabrication projects.