What’s Missing from Tax Reform Discussions for Small Business

The U.S. House Committee on Ways and Means is continuing its work to develop a consensus on tax reform. Last month, chairman Dave Camp (R-MI) and ranking member Sandy Levin (D-MI) announced that 11 committee working groups would be formed to develop discussion drafts on various aspects of tax reform. Just last week, one of these working groups issued a Discussion Draft on Tax Reform for Small Businesses. While this draft does include a permanent extension of section 179 small business expensing, it limits the deduction to $250,000, as compared to the 2013 limitation of $500,000. We certainly agree that small business expensing should be made a permanent part of the income tax code. However, small businesses should be watchful that tax reform not be used as a means to scale back traditional small business tax benefits.

Besides a few provisions, such as making section 179 permanent, the major aim of the Discussion Draft is to bring consistency to the tax treatment of partnerships and S corporations. Currently, partnership taxation is controlled under Subchapter K of the Internal Revenue Code, while S corporations are guided by Subchapter S of the code. The Discussion Draft would either make some unifying changes to each subchapter or completely replace the existing tax subchapters with a single set of new rules. Unifying the tax treatment of these entities would definitely be helpful to businesses working to determine which tax form to select – partnership or S corporation. On the other hand, such an overhaul of the tax treatment of existing small businesses could result in additional compliance costs for small businesses associated with converting to the new tax regime.

What is missing in this Discussion Draft is a real attempt to lessen either small business tax compliance or burden costs. CompTIA is working to develop comments on the Discussion Draft, which are due on April 15. As always, we welcome your comments or recommendations on what Congress can do to lessen your tax compliance and burden costs.