Whether you’re a mobile app developer or small bakery shop, tax reforms affect all business, big and small. This is especially true if your business is just transitioning to earning more than ever, as the tax code becomes more complex and difficult to navigate without professional help.
In a piece recently published by the Association for Competitive Technology (ACT), also known as the App Association, our CEO Marc Fischer discusses the good and the bad that this new tax reform brings for small businesses. Check out some of our favorite highlights below!
Born an Entrepreneur, Taxed to Death
Like many small businesses, it often felt like we were hopping through hoops and over hurdles in the dark as our Los Angeles-based development studio navigated the topic of taxes. One particular year, we tripled our revenues over the last year’s numbers. To our dismay, our exponential success quickly became a problem.
Our company was set up as a limited liability corporation (LLC), meaning that taxes on business income was paid through the business owners’ personal income tax returns. You can imagine what an unpleasant surprise this was for Marc and Rob!
LLCs are what 90% of small business owners use for their business tax setup.
The Silver Lining
Small businesses create 64% of our nation’s private sector employment, but they face the heaviest tax burden when tax season comes around. And even though tax reforms often have a negative connotation, the new tax reform offers some benefits for small businesses across the country.
The new tax laws lower tax rates for LLCs from 35% to 20%. They also offer better payroll deductions. Additionally, equipment expensing was raised to $1 million. These three major changes give businesses back a lot more money, time, and deductions to keep operations flowing more smoothly.
Some New Challenges
Don’t get us wrong, though, there are still a lot of challenges small businesses face every day because of the same tax reform. The new tax legislation is convoluted and complex, so a lot of the money that small businesses can now save will be spent directly on accountants, tax advisors, and business consultants.
To that end, we encourage anything we can do to simplify small business’s tax operations while optimizing the IRS’s ability to carry out any necessary auditing. We are in full support of the House and Senate to improve tax auditing by passing the bipartisan Preserving Taxpayers’ Rights Act.
Implications from the Broader Tax Reform
This particular legislation offers taxpayers and small businesses the ability to resolve tax audits in an IRS Office of Appeals, rather than going to Tax Court. Since there is no official law that encourages taxpayers’ right to Appeals, this Act hopes to add that sentiment into their overall bill.
Additionally, the bill places ceilings on types of cases that the IRS can litigate in Tax Court, which would return a lot of power from the IRS back to taxpayers and small business. The only way the IRS could override the taxpayer’s appeal is if the taxpayer previously acted to create a high probability of tax avoidance. This would certainly help those companies and taxpayers who made a mistake on their return to save time, effort, and money by avoiding Tax Court.
And although the statute of limitations for the IRS for businesses is three years of records, the IRS often overrules this limitation with a “designated summons”, which is a subpoena for more relevant information from previous years.
Building Better Bridges
One of the most important aspects of the Preserving Taxpayers’ Rights Act bill is that it would restrict the type of sensitive tax information that outside firms can access during tax audits. Privacy is one of the most important aspects of society and relationships today, and this gesture of goodwill would certainly protect many taxpayers and small businesses.
Continuing to create legislation that pushes back against abuse of authority by the federal government is essential to shield taxpayers and small businesses. Checks and balances should create very low potential for power abuse by any one branch of government, and that’s a big reason why we support the Preserving Taxpayers’ Rights Act.
What are your concerns about the new tax reform? What do you like about it? Let us know in the comments!Tags: corporate tax law, IRS, IRS audits, LA mobile app development, Los Angeles mobile app developers, Los Angeles mobile app development, mobile app developer los angeles, mobile app developers, mobile app development, mobile app news, small business, tax reform, tax season, tech and politics