Small Enterprise Tax Challenges, Threats

From NFIB,

The NFIB Research Center has released a new tax survey of small business owners assessing their major tax challenges, the impact of potential changes to the tax code, and the impact of tax policy on business operations. In particular, federal income and wage taxes are significant costs and administrative burdens for small businesses.

“High tax rates have long been a problem and a significant burden for small business owners,” said Holly Wade, executive director of the NFIB research center. “The majority of owners say that high business taxes place a significant financial and administrative burden on their companies. It is critical that Congress and the administration protect policies that reduce these burdens on small businesses, such as:

The most important findings include:

– Ninety percent of property owners said state business tax was a financial burden on their business. Wage and state / local income taxes were also heavily reported burdens.
– More than half of owners (52%) plan to sell their business when the time comes to move on and almost a third plan to hand over their business to a family member (33%).
– If capital gains tax were assessed at the time of business inheritance, owners were most likely (38%) to believe that family members who inherited the business would take out a loan to pay the tax, and another 26% believe family members would Part of it would sell the business.
– Around four in five homeowners (78%) say that the majority of their total household income comes from their main occupation.
– Almost half (48%) of owners said the upcoming TCJA expiry is a source of uncertainty for future business plans.

Almost all owners (91%) said they used a professional tax advisor to file their most recent tax returns. 65 percent said they were most likely to hire a tax advisor for compliance-related reasons, and 59 percent said the complexity of tax laws was also an important factor.

State business tax, payroll tax, and state and local income taxes had the highest reports of financial strain. State business tax was the most financially onerous for owners. In addition, state business tax was the most administrative burden for respondents. Owners reported that federal, state and local taxes, and wage taxes are an administrative burden and a financial burden.

Most small business owners (52%) plan to sell their business when it is time to move on, and a third (33%) plan to pass it on within the family. With capital gains tax on inherited business assets, nearly two-thirds of owners believe that the bereaved family would sell part of their business or take out a loan to pay the tax.

Respondents were evenly distributed across revenue domains, with the median respondent being $ 400,000 to $ 749,999 in revenue in 2020. However, net income was much more focused on the lower end of the spectrum, with the median company keeping $ 50,000 to $ 100,000 in 2020. A larger proportion of respondents saw a decrease in net income.

Most owners (78%) said the 2017 Tax Act was beneficial for their business. Almost half of respondents (48%) said the uncertainty caused by the expiring provisions of the new tax law is affecting their business plans.

A majority of respondents (54%) were at least somewhat familiar with the Small Business Deduction (Section 199A). 78 percent of homeowners said a large portion of their total household income comes from their home business.

The majority of respondents indicated that they legally structure their business as an S-Corp (47%), followed by LLCs (27%) and C-Crops (17%). For federal tax purposes, LLCs are classified as S-Corps (31%), sole proprietorships (31%), and partnerships (27%). Most owners with C-Corps structure their small business as such because it has always been that way (inheritance, 37%) or for reasons of liability (37%).

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