As Washington turns its attention to tax reform, the leaders of the Senate Small Business and Entrepreneurship Committee have called for simplifying the tax system for small businesses and reducing the high cost of compliance.
The committee’s chairman, Sen. James Risch (R-ID), and ranking member, Sen. Jeanne Shaheen (D-NH), sent a letter to the leaders of the Senate’s top tax writing committee urging them to support the immediate deduction of the full cost of business investments and the expansion of the number of businesses that can use cash flow accounting.
“As you consider reforming the tax code, we urge you to keep in mind that small businesses do not stand to benefit significantly from corporate-only changes,” the letter stated. “At the same time, any reforms to the individual side of the code should focus on benefitting truly small businesses…”
The letter stated that small businesses spend $18-19 billion annually—67 percent more than large businesses—and 2.5 billion hours per year complying with the tax code. And that’s with 89 percent of small businesses using outside tax preparers.
The two Senators said the largest policy issues raised by small businesses were Section 179 expensing and cash flow accounting, both of which present opportunities for simplification.
Section 179 reforms would allow businesses to immediately deduct the full cost of investments they make in their operations, such as installing new equipment or upgrading software, instead of spreading the deductions out over a long depreciation period.
They also called for raising the threshold under which businesses can use the cash flow accounting method, which substantially reduces record keeping and paperwork costs. The current threshold is $5 million.