Published May 21, 2012
Monday kicked off National Small Business Week, and the National Federation of Independent Business (NFIB) is marking the event this week by highlighting major issues faced by small business owners across the country. The first issue in the spotlight for Monday is taxes, which consistently ranks as a top-three concern for small businesses in the NFIB’s monthly optimism index.
Chris Walters, senior manager for legislative affairs at the NFIB, said 20% of small business owners in last month’s optimism index cited taxes as their single biggest problem.
“It has been consistently in that range for the past few years, because of the short-term tax policy we are getting from the federal government,” Walters said. “It’s a big concern that they want addressed, and it figures into their business activity, optimism for the future, and has an impact on their long-term business decisions.”
Last week, President Obama held a small biz roundtable to urge Congress to act on his “To-Do List.”
One of the listed items the NFIB is advocating for is extending bonus depreciation for small businesses, which allows them to write off 100% of investments up to $500,000 in equipment the year after the investment was made. This reduced to 50% in 2011, and without Congressional action will fall to $139,000 in 2012 and $25,000 in 2013. The NFIB focused on this heavily in 2010, but Section 179, or expensing the purchase cost, is the groups' top expensing priority today due to its popularity with the NFIB's membership
“One of the big problems in the tax code is instead of a long-term extension, you need to look at the big picture,” NFIB spokesperson Kevan Chapman said. “We are coming up on ‘Taxmageddon’ for small businesses, and this will be a very bad environment for small business if no action is taken.”
The NFIB is urging for other tax credit extenders, including the self-employed health insurance deduction, which allows self-employed business owners to deduct the cost of insurance for themselves and their families, as well as reducing the holding period for businesses converting from C-corporations to S-corporations. Businesses that do this are required to hold their appreciated assets for up to 20 years or face double taxation. Finally, the NFIB is advocating for start-up deductions for new small businesses, which allows small businesses to deduct up to $10,000 for start-up costs.
Uncertainty aside, complexity in the tax code is another major issue for small business owners, according to Chris Whitcomb of the NFIB Tax Council. This too would benefit from more permanency in the tax code, he said.
Cost is also a huge hurdle for small businesses, as the NFIB has calculated it costs these companies about $74 an hour to comply with the tax code, and about 206% more than it costs larger companies to do the same.
“Small business owners spend about $1,500 per employee in tax preparation, and most have to engage with some kind of tax preparer,” he said. “Most companies don’t have their own [finance] departments.”
Finally, family businesses are being threatened by a potential jump in the estate tax, the NFIB said. The tax on the estates of deceased business owners is set to climb from 35% with a $5 million exemption to 55% with a $1 million exemption in the next year.
Be sure to visit FOXBusiness.com tomorrow for our coverage on health-care reform and the issues small business owners are facing under the Patient Protection and Affordable Care Act.