Many small business benefits incorporated into the Tax Code are complicated and, some would say, in need of reform. The chair of the House Ways and Means Committee, Dave Camp, recently released a draft proposal containing numerous tax reform measures specifically designed to simplify taxation of small businesses and partnerships.
According to a report by the National Federal of Independent Business, cited by Camp, small business owners spend approximately $18 to $19 billion every year in tax compliance costs. Camp’s proposal addresses this and other issues by recommending lower tax rates, permanent Code Sec. 179 expensing, expansion of the cash accounting method, unification of tax filing rules for S corps and partnerships, and more.
Camp’s dedication to tax reform, if not his specific proposals, carry credibility on both sides of the aisle on Capitol Hill. If the momentum toward tax reform continues to grow, Camp’s current proposal will likely play a role in at least a portion of its overall framework. Below is a brief overview of his proposed reforms:
Code Sec. 179 expensing
Camp’s proposal would make the Code Sec. 179 expensing permanent (it is currently extended through 2013) for certain depreciable business property for businesses. However, with this permanence, lower limits follow. Under this proposal, a business would be allowed to deduct the costs of up to $250,000 in qualifying property placed in service during a tax year after 2013 (down from $500,000 in 2013). The allowance would be subject to a dollar limit threshold of $800,000 under the proposal (down from $2 million in 2013).
Cash method of accounting
Camp’s proposal would expand availability of the cash method of accounting for certain business entities that do not currently have the option to use the simpler cash method. Under the cash method of accounting, items of income accrue when received and expenses are counted when actually paid.
Camp’s proposal would simplify the Tax Code’s current treatment of the $5,000 deduction for start-up expenses by consolidating the current provisions, which govern organizational expenditures for corporations and partnerships, under the start-up expense deduction provisions of Code Sec. 195. The draft proposal would also increase the current deduction limit from $5,000 to $10,000, subject to a phase-out limit of $60,000 (up from $50,000).
Business tax return deadlines
Camp’s proposal would shift due dates for Form 1065 (Partnerships,) Form 1120S (S Corporations,) and Form 1120 (C Corporations.) The deadlines would change from April 15 (Form 1065) and March 15 (Forms 1120 and 1120S) to March 15 (Form 1065), April 15 (Form 1120) and April 1 (Form 1120S). The proposal would also provide an option to file six-month extensions for all three forms.
If any of these proposed changes have you wondering what other effects future tax reform changes could have on your business or if you’re wondering how to prepare for potential tax reform, please contact us at (417) 881-0145.
written by Chelsey Dollarhide, staff accountant