IRS is really going to stick to small business.......Thanks 0bama! June 16, 2013 Congressman Todd Young 279 Quartermaster Court Jeffersonville, IN 47130 Dear Congressman Young, In 2010, the BLS reported that small businesses accounted for 64% of all new private-sector jobs in the United States, approximately 50% of all private sector employment and 46% of all private sector output. This is an incredibly productive group of American businesses that essentially provide the backbone of the American economy even though multi-national firms get all of the new jobs headlines. I have spent 30 years as the President of a local CPA firm that deals exclusively with small business owners and over 20 years as President of a national education corporation teaching over 100,000 small-firm accountants about the latest tax laws and their effects on small business. This perspective provides me with a small business insight rarely encountered by the press, the IRS or Washington and allows me to confidently discuss characteristics of these small businesses. As a group, small businesses have a unique set of common factors of operation. They tend to be financially unsophisticated without in-house bookkeepers or accountants to provide them with guidance; they are time-stressed because they work longer hours than almost everyone in the country in order to just make enough to pay the bills; they tend to try to save money by doing things themselves because they are so small; and they are unbelievably cash-flow focused to the point of obsession. This focus on cash-flow and do-it-yourself attitude means that they rely much more heavily on outside accountants than on in-house guidance, but to the exclusion of establishing non-revenue producing accounting departments. They do not have financial statements prepared for them unless required by bankers, and never receive audited financial statements for any purpose simply because they have neither the money nor the need to do so. For over 50 years, the outside accountants of these small businesses have relied on dozens of court cases providing guidance on tax decisions regarding what constitutes repairs and maintenance, asset depreciation lives and what guidance to provide small business clients in decision making for tax write-offs, depreciation and cash flow. Because the cash flow question is the key inherent factor in successful small business operations the value of guidance from 50 years of judicial case law has allowed these small businesses to rely on minimal oversight and consequential minimal outside accounting fees to operate. The comfort provided by 50 years of case law has also allowed small businesses to focus on day to day cash flow generation, job creation and owner time spent on sales development rather than compliance with complex IRS rules. Now the IRS, in an incredible lack of understanding of small business operation and the importance of small business to the United States economy has decided to ignore the judicial branch of government’s 50 years of court guidance and establish a new set of depreciation rules that will essentially shut down small business asset investment and force these same small businesses to spend thousands of non-productive dollars annually to hire accountants to ensure compliance with the new rules. These rules, which are scheduled to become effective January 1, 2014 require the accountant or business owner to examine every single expense over $100 to determine if it must be depreciated in total disregard of 50 years of court cases in order to comply with the new IRS regulations. This means that these businesses, with no extra time, expertise or money must spend literally thousands of non-productive dollars for an accountant to analyze every line item over $100, subject it to multiple new tests and determine if the asset is depreciable. What are these new rules? There are two different changes affecting small business. The first change allows large businesses with audited financial statements to write-off those repair, maintenance and small equipment items exceeding 1/10 of 1% of sales. For example, Apple Computer with $100 billion in sales will be allowed to lump these small (!) amounts of $100 million or less in expenses rather than depreciate them through onerous record-keeping rules. So Apple gets to write of $100 million but small business uses $100! So how does this affect small business? Let’s say Sue’s pharmacy, with $2 million in sales wants to follow the Apple example rule. Sue would expense anything costing less than $2,000. The problem is that the IRS does not allow this rule to apply to Sue. Sue’s business, like 95% of all small business does not have audited financial statements because Sue cannot afford it, her creditors do not request it and there is no value in Sue spending this money. Without audited financial statements Sue is forced under this new IRS to keep track of every expense over $100! Skyrocketing accounting fees to examine every invoice under this ridiculous threshold will keep Sue from spending money on repairs and equipment and force her to carefully consider any new equipment purchases at all, causing a domino effect on our economy, all because the IRS has chosen to ignore 50 years of case law and the fact that small businesses in America do not spend money on un-needed audits! Change two is possibly more ludicrous and again flies in the face of 50 years of court case guidance. It requires that any small business spending more than $100 to repair any building’s “Unit of Property” subject every single expenditure over $100 to up to 9 different tests to determine if the amount spent is an improvement. As an absolute ridiculous example, if I replace the toilet in my building at the cost of $400 under this guidance I will be forced to depreciate that toilet over 39 years for a net deduction of $10 every year, even though as a small business owner I spent $400. No prudent business person will spend $400 for a $10 tax deduction and a net after-tax savings of $2-3! All investment by small businesses in building repairs, maintenance and improvements will come to a screeching halt. As a result of this change the IRS has delivered a one-two punch to literally stop the economy in its tracks-equipment investment will stop and real estate investment will stop. And why? Because the IRS has gotten tired of losing court cases and decided to establish their own rules to throw out the decisions of the judicial branch of government. As an unofficial representative of small businesses all over the United States and as a financially aware citizen and professional I am requesting that you help stop the IRS from implementing these economy-crushing rules and to keep the IRS from usurping the judicial branch of the United States government. Sincerely, Bob Jennings CPA, CFP
Posted on: Wed, 26 Jun 2013 16:48:58 +0000
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