Small firms struggling as they wait in tax limbo


Dan Danner
Dan Danner

The IRS needs money. It’s struggling to get by on about $12 billion a year, an agency official told Congress, warning that insufficient funding prevents adequate enforcement. The result is a $400 billion “tax gap” caused by some taxpayers under-reporting what they owe. 

Washington’s solution? Give revenuers more money. But a better use of the nation’s cash is reflected in the views of American small business owners desperate for a tax system that’s less confusing, affords greater certainty and returns capital to Main Street for growth and job creation. 

And just to warm up for the long overdue, but essential, task of overhauling tax regulations, Congress could immediately ease the burden for small firms and inject some much-needed cash back into the economy where jobs are desperately needed. How? By extending or restoring critical tax provisions that it failed to renew at years’ end. 

There are many of these extenders languishing in limbo that could be revised retroactively if lawmakers act quickly.

If not, small firms can expect a steep tax increase. 

One vital way to improve cash flow, bolster investment and simplify taxes is on the verge of becoming irrelevant, depriving small firms of money they could feed back into operations for growth. Officially dubbed Section 179, it allows small businesses to immediately deduct the full value of equipment investments in the year they’re made rather than over several years.

This allowance could shrink from its current $139,000 level to $25,000 by 2013. The National Federation of Independent Business has recommended returning it to its 2011 point of $500,000. 

 Health insurance equity is a challenge facing self-employed business owners. Under current law, they aren’t allowed a 100 percent deduction for premium costs. Expanding the deductibility of coverage to apply to employment taxes would remove that burden. 

Many businesses established as S corporations could grow and hire more workers if given access to assets tied up by outdated tax rules. Currently, the lengthy holding period for built-in gains prevents these corporations from using assets. By modernizing these antiquated rules, Congress could ease access to essential capital. 

 There’s no greater country in which to launch a small business than the United States. But those who take the leap face such significant startup costs as advertising, legal fees, rent and employee training. An increase in the deduction for startup costs would allow new entrepreneurs to funnel capital back into their businesses faster, boosting local economies and creating more jobs. 

Legislation favoring these small business-friendly extenders has been introduced by U.S. Sens. Olympia Snowe of Maine and Mary Landrieu of Louisiana, and a similar House bill is being prepared. None of these items requires a new tax cut or budget offsets. 

Members of Congress who are uncertain about extending these provisions should ask any taxpaying constituent whether it’s better for the nation’s economy to put cash back in the hands of small business owners or to give it to IRS bureaucrats and enforcers.

Main Street already knows the answer.