Monday, June 27, 2016

Suggestions for Easier Tax Compliance for Small Business

If you’re a small business owner, then you probably already know all too well how difficult tax compliance can be. Once you think you’ve got the rules figured out, they change, and if you make a mistake, then you’re likely to be burdened by hefty fines and penalties. To make matters worse, small businesses typically don’t have the resources to leave all of the “figuring it out” up to professionals. 

The really unfortunate thing about all of this is the fact that tax compliance doesn’t have to be nearly as hard as the IRS makes it. On the positive side, though, the IRS does realize that its compliance rules have some issues, as do a lot of other important people. That’s why, recently, a hearing was held by the U.S. Senate Committee on Small Business and Entrepreneurship, and together, the members of the committee came up with some potential (and hopefully soon-to-be-implemented!) strategies for simplifying compliance for small businesses.

Proposed Solution #1: A Simpler Tax Code

It makes sense that, if simpler compliance is the goal, a simpler tax code is necessary. Experts are hoping for a scaling back of the current massive tax code, which contains more than 74,000 pages.

Financial experts have suggested many changes that could lead to an easier-to-understand, less threatening code, but some of the main proposed changes include:

l  Fewer industry categories
l  A reduction in overall tax rates, brought on by a scaling back of unique tax breaks
l  Fewer distinctions within categories
l  Rules that vary based on business type and size

As it stands, many feel that the current tax code favors large corporations and leaves small businesses in the dust; however, these changes, if enacted, could change all that for the better.

Proposed Solution #2: Allow Cash-Method Accounting for More Businesses

Many businesses regard cash-method accounting as much simpler and easier to understand than accrual method accounting. Unfortunately, though, businesses that make more than $5 million in yearly revenue are required to use the more complex method, which requires them to report expenses as they are incurred, not as they are paid for.

If a new proposal is approved, however, any business with $10 million in revenue or less would be able to use the easier cash method, which allows them to simply log and count earnings as they receive them.

This would open the door for many more businesses to enjoy easier compliance and easier, more accurate accounting in general.

Proposed Solution #3: Take the Section 179 Expensing Limit from Temporary to Permanent

Section 179 has been around for quite some time, and its basic purpose is that it allows businesses to write off all of some expenses, up to the yearly limit, instead of having to depreciate them as time goes by.

The current limit is $500,000, but that’s not yet permanent, though many want it to be. If these people have their way, the limit would stay at that nice $500,000, giving tax relief to business owners everywhere and also keeping them from having to play the “guessing game” about what the limit will be each year.

There is no guarantee that these proposed solutions will actually happen, but it’s nice to know that work and thought is being put in to make compliance easier for small businesses. Now, business owners just have to cross their fingers and hope that the people in charge listen to this great advice.