Schock, Thompson Legislation Included in Small Business Tax Reform Discussion Draft

Press Release

Congressman Aaron Schock (R-IL) and Congressman Mike Thompson (D-CA) both of the Ways & Means Committee joined today to praise the inclusion of the Small Business Accounting and Tax Simplification Act in the House Ways and Means small business tax reform discussion draft. The Schock-Thompson legislation, H.R. 947, would allow small businesses with up to $10 million in gross receipts to be eligible for a more simplified accounting and tax filing method with the Internal Revenue Service (IRS).

Under current law, most businesses are required to use accrual accounting when filing their taxes with the IRS. For many small businesses, the alternative cash-basis method offers more flexibility in tax planning, since cash accounting is a simplified method that more accurately reflects the way a business collects income and claims expenses for business purposes.

"With a bloated tax code, which stands at over 70,000 pages, small businesses are put at a disadvantage when it comes to dealing with the IRS," said Schock. "By expanding the eligibility for small businesses to use cash accounting, we will provide them with a vital tool to save time and money, and allow these entrepreneurs to focus more on growing their business than complying with complex IRS regulations."

"No matter which side of the aisle you're on, we should all be able to agree that simplifying taxes for small businesses is good policy," said Thompson. "That's what our bill is about. It will save small businesses time, paperwork and headaches during tax season by expanding cash accounting, allowing them to focus their efforts on what they do best--growing their business--not on complicated accounting practices."

"One key provision included in today's discussion draft is based on a provision championed by Congressmen Schock and Thompson that is aimed at simplifying and expanding the use of cash accounting for small businesses. Allowing businesses with $10 million or less in gross receipts to use cash accounting can simplify their tax compliance efforts so that they can use their time, energy and resources in a more effective way -- toward growing their business. Aaron and Mike's commonsense proposal will ease the burden that too many face as they struggle with today's broken tax code and is a step toward the fairness and simplicity that small businesses need and want," said Chairman Camp.

According to the National Federation of Independent Business small businesses spend annually between 1.7 billion and 1.8 billion hours on tax compliance and $18 billion to $19 billion on compliance costs. The result is that 88 percent of small business owners hire a paid tax preparer to complete their returns. "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 Dan Danner, President and CEO of the National Federation of Independent Business. "NFIB and its members would like to thank Congressmen Schock and 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."

As part of the Ways and Means committee's broader effort on comprehensive tax reform, Chairman Dave Camp (R-MI) today released the small business tax reform discussion draft. Reforming the tax code for small business will be a significant part of any tax reform package. Eight out of ten businesses file their taxes as individuals, not as corporations and the pass-through model of small businesses (Sole proprietorships, S-corps, LLCs and Partnerships) has tripled from 10.9 to 30 million over the past 30 years. These pass-through businesses should be afforded flexible tax and accounting rules that reflect their needs for current cash flow to finance operations.

"One key provision included in today's discussion draft is based on a provision championed by Congressmen Schock and Thompson that is aimed at simplifying and expanding the use of cash accounting for small businesses. Allowing businesses with $10 million or less in gross receipts to use cash accounting can simplify their tax compliance efforts so that they can use their time, energy and resources in a more effective way -- toward growing their business. Aaron and Mike's commonsense proposal will ease the burden that too many face as they struggle with today's broken tax code and is a step toward the fairness and simplicity that small businesses need and want," said Chairman Dave Camp.

"Employers who pay their business taxes as individuals account for 54 percent of all private sector employment in the U.S. Our country's ability to put people back to work is proportional to how we treat small businesses under the tax code and how we provide employers with the flexibility they need to focus on building a business's versus dealing with a burdensome tax system. This discussion draft will allow the committee to continue its work toward creating a fairer tax system that doesn't penalize success and will help grow our economy at the same time," added Schock.

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