Reps. Quigley, Luetkemeyer, Schneider and Hudson Push for Small Business Accounting Flexibility in Tax Reform
Today, U.S. Representatives Mike Quigley (D-IL), Blaine Luetkemeyer (R-MO), Brad Schneider (D-IL) and Richard Hudson (R-NC), along with 67 bipartisan members of the House of Representative, urged the House Ways and Means Committee to fully consider the negative ramifications of proposed tax reforms that would limit accounting flexibility for small businesses that drive local economies.
The draft Tax Reform Act of 2013 sets new limits on the use of cash accounting by pass-through entities, farms and professional service firms, and would inhibit growth by moving many to a more cumbersome accrual accounting method once they grow above $10 million in gross receipts.
In a bipartisan letter sent to Committee Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI), the legislators state:
“For many small businesses, mitigating the one-time costs of switching accounting methods would be extremely difficult, as would the continued use of the more complex accrual method of accounting.…Across sectors, small business owners are concerned at the possibility of complying with a more complex accounting system that requires them to report income before they receive the cash….it is our shared goal to simplify and reform the tax code into one that enables growth and competitiveness while reducing the cost of compliance and maintaining fairness.”
Pass-through entities account for more than 90 percent of all business entities in the United States and are represented across a diverse range of business professions and sectors, including dentists, physicians, accounts, lawyers and engineers.
The cash method of accounting, in which receipts are recorded when revenues are received, is a simple and appropriate manner for taxing both individuals and the many businesses that are taxed at the individual rate. Rather than expanding the use of a more simple accounting technique, this reform would move many businesses to the accrual method of accounting, in which receipts are recorded when transactions are made rather than when payments are received.
The letter has received the support of the American Farm Bureau Federation, the American Institute of CPAs, the American Council of Engineering Companies, and the American Dental Association.
Please click here for an online copy of the letter.