Ease the tax burden

By J. D. Harrison

The House of Representatives’ top tax writer wants to change the way many small businesses are structured, hoping to make the system more transparent and less expensive for employers who pay personal taxes on their business income.

House Ways and Means Chairman Dave Camp (R-Mich.) on Tuesday released a draft of the committee’s latest tax reform legislation, which includes various proposals to simplify tax rules that affect millions of small business owners and their employees. The legislation would, for instance, create one set of rules for various types of businesses, simplify the code for start-ups, and make permanent a popular-yet-temporary provision for expensing investments in property and equipment.

By providing greater long-term clarity and fewer compliance challenges, the changes are meant to give employers more time and resources to spend building their firms and creating jobs.

“More Americans get their paycheck from small businesses than any other type of business or government,” Camp said in a statement. “If we really want to strengthen our economy and put more money in the pockets of American workers, we must fix the Tax Code and how it treats small businesses.

The discussion draft offers two alternatives to eliminate variations between partnerships and S corporations — one that revises the current system to treat both entities more uniformly, and another that would essentially throw out the terms altogether and create a new standard for all pass-through businesses (firms that pay taxes through owner’s personal returns, rather than at the corporate rate). The draft’s authors argue that the latter would make compliance simpler for millions of business owners and cut down on tax evasion.

In addition, they propose expanding Section 179 expensing, which currently allows business owners to immediately deduct up to $500,000 worth of qualifying property and equipment investments. The cap was set to fall to $25,000 next year, but the legislation would make permanent a maximum deduction of $250,000.

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