Taxation
May 2004
NAWBO Position:
NAWBO supports tax policy that fosters the economic growth of women-owned and other small businesses.
Background:
Recently released (April 28, 2004) statistics from the Center for Women’s Business Research indicate that in 2004 there are 6.7 million majority (51%) women-owned firms, accounting for 30% of all privately-held US companies. These businesses employ 9.8 million people and generate $1.19 trillion in sales. Between 1997 and 2004 they grew at nearly 2.5 times the rate of all US privately-held entities – 23% versus 9%.
The SBA Office of Advocacy reports that in March 2004 there were approximately 23 million small businesses in the US. These entities account for 99.7% of all employer firms; employ over 50% of all workers, with 39% of these being high tech workers; pay 44.3% of the total US private payroll; and create 60 – 80% of all new jobs. Additionally, they provide more than half of all innovations, goods, and services – the gross domestic product (GDP). Further, they usually lead the country out of difficult economic times.
However, tax discrepancies detrimental to women-owned and other smaller sized firms continue to exist in the following areas:
- Business Meals and Entertainment: The SBA Office of Advocacy released an April 2004 study which indicated that small businesses taking advantage of the current 50% deduction reduced their effective tax rate by an average 0.86%, with some sectors achieving 1.5 – 5% ranges. These numbers reinforce how important that deduction is for these smaller entities. NAWBO supports legislation that will allow an immediate small business tax deduction for 100% of the meals and entertainment expenses meeting the business purpose criteria.
- Fringe Benefits: Self-employed individuals, partners in partnerships, members of limited liability companies, and shareholders in S corporations must include in income such fringe benefits as medical insurance premiums. According to a Kaiser Family Foundation study, a sole proprietor pays an average of $9068 annually for these premiums. If this expense were deductible for FICA purposes, there would be a tax savings of $1387, which could be reinvested into the business. NAWBO supports the position that if the payments of all fringe benefits are deductions to the C Corporation and exclusions from the taxable compensation of the C corp owner-employee, then all such benefits should be excluded from the income of the non-C Corp owner.
- Home Office Deduction: The current home office deduction is difficult to qualify for in terms of space use of the home and activities conducted there. Further, the calculation of the amount of it is time consuming and complex. According to the SBA Office of Advocacy, 53% of small businesses are located in the home. This Office released a study in February 2004 indicating that home-based businesses are penalized by the IRS regulations related to this deduction. NAWBO supports a standard $2500 home office deduction for home-based businesses.
- Estate (Death) Tax: This tax creates a disincentive to expand a business, create jobs, and invest in capital equipment. Further, the estate tax is a form of double taxation since profits and earnings have already been taxed once when income taxes were paid. NAWBO supports the permanent repeal of the estate tax, particularly as it relates to family-owned and small businesses.
NAWBO Efforts:
NAWBO is a member, along with WIPP, NFIB, US Chamber of Commerce, National Association of the Self-Employed (NASE), National Small Business Association (NSBA), and other small business organizations, of the Equity for our Nation’s Self-Employed Coalition, which will advocate passage of legislation to ensure tax fairness for the nation’s 16 million self-employed business owners. Currently, efforts are in place to get HR 1873, which now has 57 sponsors as of May 2004, passed or have its provisions included as an amendment in other legislation.Accomplishments: During 2001 – 2003, three pieces of legislation were enacted that incorporated NAWBO’s taxation positions. Examples of the impacted areas are: small business pension plan reform; repeal of the estate tax (until 2010); 100% health insurance premium deduction for income tax purposes; increases in the Section 179 expensing limits; and a reduction in the capital gains tax rate.
Current Legislation:
There has been little change or any major action in the tax-related bills presented in the February 2004 Public Policy Issues Guide. However, the following new activity is of interest.
- HR 1873 (now has 57 sponsors): Plans are that a bi-partisan companion Senate bill will be introduced in the next few weeks by two members of the Senate Finance Committee, which will have jurisdiction over the bill.
- HR 3901: Introduced by Rep. Philip M. Crane of Illinois, this legislation seeks to amend the IRS code of 1986 to allow a deduction for all taxes, including payroll, for high deductible health care premiums, for the non-C Corp owner / employer. This bill has 56 co-sponsors and was referred to the House Committee on Way and Means 3/4/04.
Senator Jon Kyl, in early 2004, proposed a measure that would extend the repeal of the estate tax for two additional years beyond 2010. Additionally, several Democrats have introduced recent legislation that raises the exemption to up to $10 million and lowers the rates to 25%, rather than the current 50 – 45% (2007).
Please contact Sallie Mullins Thompson or Kathy Rappaport for questions.
