Skip to Content

July 14, 2017


Lawmakers target small business tax challenges

Taxes are just one of many factors that can make it difficult for smaller businesses in Texas to compete and get a leg up in a marketplace that is increasingly dominated by large companies. At a pair of congressional hearings on July 22, 2015, federal lawmakers heard testimony about the ways in which small business owners are often disproportionately affected by their obligations under the federal tax code.

Complexity affects small businesses disproportionately

The federal tax code has been amended more than 5,000 times since 2001, according to American University’s Kogod Tax Policy Center. The resulting tax laws are notoriously complicated and confusing to apply – especially for smaller companies that have fewer resources to devote to assessing how different tax provisions will affect their bottom line.

Smaller companies spend about two-thirds more on tax compliance than their larger counterparts, according to a study from the Small Business Administration’s Office of Advocacy, which was cited in a hearing before the House Committee on Small Business. The average small business with less than 50 employees spends more than $1,500 per employee on tax compliance each year, compared with just under $650 per employee at larger companies that employ more than 100.

What changes could be in store for your business?

If changes are implemented to the tax code in an effort to even the playing field for small business owners, it remains unclear exactly what those changes would look like. Some business tax experts argue in favor of eliminating a majority of existing tax breaks and replacing them with lower baseline tax rates.

Others favor more targeted measures such as allowing more small businesses to use the cash method of accounting, which is simpler and less expensive to implement than the more widely used accrual method. Others proposed changes include improving taxpayer services at the IRS and modifying many of the civil tax penalties for small businesses in order to encourage voluntary compliance with the tax code.

Some say an overhaul of the federal tax laws is necessary to reduce the disproportionately high tax burden on smaller companies by making it easier for business owners to understand and comply with their tax obligations. Others, however, balk at the challenges such a complex task would involve and question whether it would result in substantial savings.

Legal help for Texas business owners

As high as the costs of tax compliance may be, noncompliance can be even more costly due to the fines, penalties, interest and in some cases even potential prison time that can result from noncompliance. If you have questions or concerns about tax issues relating to a small business in Texas, contact the experienced tax attorneys at Brown, PC, for customized legal advice based on the specific circumstances of your situation.

Important Trends at IRS