NASE News

Tax Reform Discussion Draft Prompts NASE Comments

By Katie Vlietstra

In April, the NASE provided feedback to the U.S. House of Representatives Ways and Means Committee on its small-business tax reform discussion draft. In blunt terms, only one of the four components has any bearing on the self-employed community: the Unified Deduction for Start-Up and Organizations Expenses.

Ironically, the framework for the unified deduction is included in H.R. 886, the Small Business Tax Relief Act of 2013, which includes an additional six tax measures that the small-business draft overlooks (Note: the small-business draft does include the permanent expensing provision which is included in H.R. 866).

The NASE has met with various tax staff members to express our concern and discuss additional items that we encourage the House Ways & Means Committee as well as the House Small Business Committee to consider as they work to finalize draft legislation reforming the tax code.

What Congress Can Do

The NASE suggests the following tax proposals to make the tax reform draft more relevant to the self-employed:

1.  Make the deduction of health insurance costs for the self-employed a qualified business expense by adding a line item on the Schedule C form and not on page
one of Form 1040.

2.  Amend the definition of “employee” to include the owner and spouse of a sole proprietorship, or a 2 percent or greater shareholder in an S corporation—a simple legislative or administrative fix to current language.

3.  Create a simplified and streamlined definition of independent contractor versus employee by expanding the Form 1099 that requires the owner and contractor to agree to their business relationship in a transparent manner.

4.  Simplify depreciation calculators, reporting requirements, and accelerated options for most standard business items and amounts, all of which would be included as a line on the Schedule C form.

5.  Build off the simplified home office deduction and identify other areas to establish standard deduction options based on industry and location, resulting in the development of a Standard Schedule C-EZ form.

All the above proposals meet the criteria of creating a lean, simplified, equitable tax code—inspiring entrepreneurship and growth within the small-business community.

It goes without saying that any significant reform to the tax code will be challenging, but we believe that putting forth a dynamic, common-sense proposal for bringing the tax code into the 21st century can be accomplished if the proposal provides for a transformational change to all aspects of the tax code—individual and corporate.

As it stands now, our concern remains that the draft proposal looks only to modify or tweak the current tax code, but falls short of taking a path to overhauling the dysfunctional and byzantine tax code with a vision for complete reform of the individual and corporate tax structure.