Last night, Congressman Rick Berg and Congressman Mike Thompson (D -- CA) joined to introduce the Small Business Tax Simplification Act. This legislation would allow businesses with up to $10 million in gross receipts to be eligible for a more simplified tax filing method with the Internal Revenue Service (IRS).
"In North Dakota, we know that jobs come from small business -- not big government. Small business is the backbone of our economy and the engine to get Americans back to work," said Berg. "Instead of being bogged down with complex tax reporting requirements, this bipartisan legislation will allow businesses to use a simplified form of accounting that more closely matches the way a small business owner runs their business. The bill represents a commonsense change that would ease the burden of tax complexity for many small businesses so they can spend more of their time and resources doing what they do best -- growing their business and creating jobs."
"Simplifying taxes for small businesses is something that everyone can agree on," said Thompson. "I am proud to introduce this bipartisan legislation that will save small businesses' time, paperwork and headaches during tax season. Expanding cash accounting for small businesses will allow them to focus their efforts on what they do best--growing their business--and not on complicated accounting practices."
Under current law, small businesses are required to use cash-basis or accrual accounting when filing their taxes with the IRS. For many small businesses, the cash-basis method can offer more flexibility in tax planning, since cash accounting is a simplified method that more accurately reflects the way a business collects income and claim deductions for investments.
However, only businesses with up to $5 million in gross receipts are currently permitted to use the cash-basis form of accounting. The Small Business Tax Simplification Act would allow businesses with $10 million in gross receipts to utilize this method as well.
Berg spoke on the House floor last evening to support the passage of this bipartisan proposal. View the speech here.
According to the most recent National Federation of Independent Business (NFIB) Small Business Problems and Priorities survey, tax complexity remains one of the top five major concerns for businesses. Dan Danner, President and CEO of the NFIB offered his support of Berg and Thompson's legislation.
"This expansion of the availability of cash accounting for tax purposes will help simplify tax filing and reduce the paperwork burden for many small businesses," said Danner. "NFIB and its members would like to thank Congressman Berg and Congressman Thompson for this common-sense approach to helping job creators operate as efficiently as possible during this time of economic recovery. It will certainly help make it easier for many small businesses to grow and create jobs."
Below is a summary of the Small Business Tax Simplification Act.
* Tax complexity remains a major concern for American businesses.
* The cash accounting method is much easier for small business owners to use when reporting income to the IRS because it more closely matches the way that a small business owner keeps their books. As opposed to accrual accounting--which requires businesses to immediately recognize their future cash receipts and costs for income tax purposes.
* Small businesses with up to $5 million in gross receipts are currently allowed to use this simplified form of accounting (a threshold established in 1986).
* Increasing the threshold for cash accounting to $10 million in gross receipts would simplify taxes for many more of America's small businesses.
* Allows businesses with up to $10 million in gross receipts to be eligible to use cash accounting, thus simplifying taxes for many more American small businesses.
* $10 million threshold would be adjusted for inflation.
* The choice between cash and accrual accounting would remain optional, so businesses can continue to use the method that works best for them.