On behalf of America’s 22 million smallest businesses — the self-employed and micro-businesses — nationwide, we write to you with an important message: Any meaningful overhaul of the tax code must be fair and comprehensive. Unfortunately, our country’s tax code is unfair and actually deters those who want to start and grow their own small businesses. The tax code should encourage the creation of new small businesses and the growth of existing small businesses.
Who are we? We represent an overwhelming majority — 76 percent — of the entire small-business community. We are your neighborhood dentists, delis, accountants and bookstores. In contrast to larger “small businesses,” our businesses range in size from a single sole proprietor to fewer than 10 employees. As one of the most healthy economic sectors — self-employed businesses grew an average of 3.4 percent over the past decade — we embody the real entrepreneurial spirit of America. Instead of standing in line at the unemployment office, we step out of it to create our own job while helping the national economy improve at the same time.
Unfortunately, the political and economic environment is sour at best for our country’s smallest businesses. Despite paying our taxes and contributing to the economy, we face enormous challenges with barriers and roadblocks. The implementation of the upcoming health care law means additional taxes that threaten our bottom lines. A lopsided individual and corporate tax structure treats us unfairly during tax time. And the unresolved spending cuts at the federal level indicate that access to credit and capital will be difficult. These items combined with the uncertainty of our nation’s fiscal health puts our success at risk. We need a level playing field to be competitive. We need a supportive policy environment that fosters the creation of new small businesses and growth and expansion of existing small businesses.
We write today because as Congress and its committees continue conversations about changing the tax code, it’s critical that our businesses and the contributions we make to our country’s economy are considered. The current discussion drafts and frameworks that have been proposed fail to address loopholes in the tax code that treat the majority of small businesses unfairly. Even worse, most of the current discussions about tax changes have forgotten about our communities’ priorities altogether. What we’ve seen thus far is, quite simply, more of the same. If we are going to invest in strengthening the tax code, we should do it right and address everything on the table.
It can be done.
Consider this: The self-employed and micro-businesses (and employees who work from a home office) stand to benefit from a new streamlined IRS home office standard deduction option that takes effect in 2014. The new option will save small-businesses owners who work from home both time and money. This is just one example of how to remove barriers and make the tax code simpler for the small-business community.
Now is the time for big ideas and simple changes to the tax code that will inspire Americans to open and grow their own small businesses. Any change to the tax code must include fundamental priorities of America’s smallest businesses that are at the heart of our economy. These include:
Amending the definition of “employee” to include the owner of a sole proprietorship would allow them to take advantage of fringe benefits such as a Health Reimbursement Account plan, retirement plan contributions and health insurance premiums without the owner having to form a corporation and incur additional expenses.
Allowing for the self-employed heath insurance deduction to become a permanent business expense by making it a line item on Schedule C rather than on Form 1040, making the deduction a business expense comparable to the way it’s treated for big businesses.
Simplifying the definition of independent contractor versus employee to reduce any misunderstanding by small businesses of its workers’ statuses.
Streamlining depreciation calculations, reporting requirements and accelerated options for many standard business items and amounts to simplify the deduction process.
Creating a Standard Schedule C-EZ by expanding as many standard deductions for business expenses as possible.
Even President Barack Obama believes we need a fairer and simpler tax code; now it’s your turn, Congress. By considering simple adjustments to the tax code, our community and our contributions will help ensure a robust tax overhaul plan that’s equitable for all. Our small businesses generate nearly a billion dollars annually for the national economy. It’s not enough to talk about how our businesses provide the economic fuel for our nation without taking the sufficient policy actions to help ensure our growth. It simply isn’t sound economic or tax policy for Congress to overlook the health of America’s smallest businesses, because when we succeed, America thrives.
Kristie Arslan is the president and CEO of the National Association for the Self-Employed, a resource for micro-businesses and the self-employed.