The annual tax dance is an onerous process often taking hours of a small business owner’s valuable time. Every year, small business owners across the country complain that the tax system is overly complex. It takes them away from running their mom-and-pop bakery or family-run landscaping business and requires them to spend time instead collecting financial documents, organizing them, determining and calculating potential deductions, and generally winding their way through a burdensome tax code.
What if there were a simpler way to do taxes that could save time? The tax reform bill recently passed by Congress and signed into law by President Trump could do just that. It will have a significant impact on millions of small businesses desperately seeking relief from America’s oppressive tax code.
{mosads}Small business owners long have advocated for a more simplified system that inspires growth. That’s because, more than any other commodity, the one true asset they have is their time — time to operate, save, grow and create jobs. The time they could save in completing and filing tax returns could be invested in their business.
Although not perfect, the tax plan offers a major benefit for small businesses: a step toward simplification.
As one of the fastest growing small business demographics, the self-employed and micro-business community (businesses with 10 or fewer employees) represents over 76 percent of all small businesses. There is no greater engine for our economy, helping spur job growth along every Main Street across America, than our country’s smallest businesses. From bakers to restaurant owners to business consultants, they embody the heart and soul of the middle class. These entrepreneurs have stepped out of the unemployment line and into the line of job creation — for themselves and others.
The average small business owner spends more than 160 hours during tax time dealing with CPAs, audit concerns, receipts, IRS forms and publications. Simplicity can save time and money. For example, a nearly doubled standard deduction — from $6,500 to $12,000 — will allow businesses owners to get the financial benefit of itemization without spending hours itemizing individual deductions. With just one, time-saving checkmark, they can save time and money. Lowered individual tax bracket rates will put more money in the pockets of small business owners to reinvest into their business.
Simplifying the tax code will help ensure an equal playing field for all businesses, small and large, and is vital to overhauling our nation’s tax system. Consider the baker, who could use the time instead to bake (and sell) additional cakes or introduce a new line of cookies. The food truck owner could rent another truck and hire extra staff. When business owners can save time and money through simplification, their dollars contribute to the local and national economy.
One tangible reform that should happen immediately and would bolster and improve simplification is expanding the standard deduction to the Schedule C. A majority of America’s smallest businesses file their tax returns as individuals on a Schedule C form, subjecting these taxpayers to a long and complicated process. The IRS requires self-employed filers to complete the Schedule C form to report income profit and loss from their business. You may have heard the idea of filing your tax return on a postcard — that level of simplicity could be applied to a standard deduction for the Schedule C.
This is not a new concept; there are models in place that work for large and small businesses alike. The recently implemented home office standard deduction is evidence of streamlining the process by allowing small businesses to simply check a box, saving hours of time calculating deductions. This concept could be applied to various business expenses, from depreciation to cell phone usage and advertising.
In fact, any line on the Schedule C — and the entire form itself — could and should be reformed to allow for a standard deduction. The cabinet-maker in Des Moines could just click a box and their return would be done; the same with the graphics designer in New York or the independent real estate agent in Dallas. Small businesses and sole entrepreneurs could save hours of time through the expansion of the standard deduction.
The bottom line: simplification will reduce the amount of time small business owners spend completing and filing their tax returns. If it saves them a week of time painstakingly managing IRS compliance, the result could be an increase of 2 percent of time and productivity. This productivity means more time for small business owners to spend running their business and strengthening our overall economy.
Keith Hall, a Certified Public Accountant, is president and CEO of the National Association for the Self-Employed (NASE), the nation’s leading advocate and resource for the self-employed and micro-businesses.