Compliance vs Growth: Tax Gap Solutions Burden Small Businesses

Surprise, surprise. Small Business is under fire yet again.

Proposals recently issued by the Treasury Department to close the tax gap, which focus on small businesses and the self-employed, would generate only $2.9 billion in revenue, one percent of the estimated total, while they would increase the paperwork requirements on small businesses, and even turn them into tax collectors, bizjournals.com reports.

In case you are wondering, the breakdown is about 1 cent on the dollar. Granted, there is a shortfall here, but deputize small businesses? That’s weak. Personally, I’m a big fan of accountability, not pass the buck- especially when it comes to those who are employed by our tax dollars.

So what is going on here?

It’s the same old story, the Treasury Department has targeted small business because underreported business income and unpaid self-employment taxes account for more than half of the tax gap.

A key element of the government’s strategy is to increase third party reporting to the government that would come from additional paperwork to be done by small businesses.

The proposals would require:

Businesses to file Form 1099 for payments of $600 or more to corporations that provide services,

Businesses to check the Taxpayer Identification Number of their contractors with the IRS and withhold taxes if the TIN is not verifiable,

As someone who has experience with small business, allow me to offer my insight- that the current tax system already forces small businesses to spend money on compliance rather than on growth.

Here’s my idea to help close the tax gap- why not hold the taxman accountable to audit schedule C filers? If that sounds like too big of a task for Uncle Sam to handle, then maybe they should consider simplifying the tax code. Now there’s an idea.

Read some related reports from the Business World:

Remarks from Jeffrey Hoops, American Institute of Certified Public Accountants
Remarks from Macey Davis, National Federation of Independent Business

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