NSBA Endorses Sen. Vitter Tax Compliance Relief Bill

July 14, 2015

pic-irs-tax-smNSBA is endorsing legislation soon-to-be introduced by Senate Small Business and Entrepreneurship Committee Chairman David Vitter (R-La.) that will provide relief from provision in the tax code that are frequently cited as overly restrictive and onerous for small businesses. The Small Business Tax Compliance Relief Act intends to help alleviate the administrative burden of tax compliance on small-business owners.

The current tax code is comprised of more than 10,000 pages of laws and regulations that serve as a disadvantage to small businesses, and are egregiously complex and constantly in flux. While 73 percent of NSBA members support broad tax reform, we recognize that is unlikely to happen in the immediate future, and in the interim, endorse Sen. Vitter’s approach to addressing some of the administrative burdens of tax compliance for small businesses. Tax complexity is a problem for small businesses because spending time and money on tax compliance drains financial resources.

Results from the NSBA 2015 Taxation Survey indicate that the majority (59 percent) cited administrative burdens, while 41 percent highlighted financial burdens as the most significant challenges to their business posed by federal taxes. In 2015, one-in-three small-business owners reported they spend more than 80 hours per year dealing with federal taxes—that’s two full work weeks—the majority spent more than 40 hours per year. Just imagine the collective business and job growth that could be done absent that burden. Furthermore, nearly half of small businesses spend $5,000 or more annually on the administration (i.e.: accountant fees) of federal taxes alone. This is before they even pay their actual taxes!

The Small Business Tax Compliance Relief Act would make several commonsense changes to the administration of U.S. tax laws that cumulatively would help small-business owner struggling to comply with an overly complex tax code. Such provisions include:

  • Increasing the threshold for cash accounting to $10 million.
  • Increasing the de minimis safe harbor threshold for small businesses from $500 to $2,500.
  • Eliminating burdensome record keeping requirements for certain communication equipment.
  • Full deductibility of health insurance for the self-employed just as all other businesses enjoy.
  • Creating a Flexible Retirement Account option with simplified rules and fewer restrictions.
  • Allowing small high-growth companies to defer tax payments via a “BRIDGE” account, with interest, in response to the difficulty young businesses have acquiring new capital without adequate collateral to secure it.
  • Requiring the IRS to convene small business review panels when making rules changes that would impact small businesses, as is customary with some agencies under the Regulatory Flexibility Act and the Small Business Regulatory Enhancement Flexibility Act.
  • Giving the IRS commissioner necessary authority to waive penalties or deadlines if the small business is shown to have acted in good faith.
  • Adopting inflationary adjustments for several fixed limitation amounts (not rate brackets).
  • Directing the IRS to produce a report that details the various statutory definitions that can be standardized and recommendations for how tax provisions can be “layman proof.”
  • Directing the IRS to produce a report with specific ideas on how to improve its customer service to small businesses and shorten its turnaround time for them as well.
  • Modifying rules relating to the termination of partnerships and S-corps.
  • Repeal of Section 416 top heavy rules for certain small business retirement plans.
  • Provide greater opportunity for small businesses to obtain reasonable cause exceptions and waivers when they protest a penalty and have acted in good faith.
  • Adjusting some tax dates to be more in keeping with the normal, yearly business cycle.
  • Allowing small businesses to utilize Section 409A deferred compensation packages without the overly restrictive rules that were originally designed in response to the Enron and WorldCom scandals.
  • Reducing the holding period for Qualified Small Business Stock from 5 to 2 years.
  • Extending the rollover period for Qualified Small Business Stock from 60 to 120 days.

Federal taxes are routinely ranked among the top issues facing small businesses and pose a huge and unique financial and administrative burden for small-business owners. NSBA believes the Small Business Tax Compliance Relief Act is a step closer to enabling businesses to invest in new equipment, hire more workers and dedicate more money to savings and investment, which in turn will help strengthen our economy.

Please click here to view the NSBA letter of support.