OPINION:
I have practiced public accounting for 21 years and can tell you without doubt that the 20% small-business deduction has been the single most beneficial tax deduction for small-business owners.
This is the message I personally delivered to Congress as someone who works with true American small-business owners every day. My own small business, Ignite Accounting & Business Advisors, is an accounting firm based in Columbia County, Georgia. My small but mighty team nurtures other small businesses. We’re talking about coffee shops, ice cream shops, restaurants, professional service business owners — the real heartbeat of the American economy.
As we get closer to critical parts of the 2017 tax cuts expiring at the end of this year, my clients lack the certainty of whether or not many of the provisions they depend upon will be extended. This includes the 20% small-business deduction — the centerpiece of the 2017 tax cuts — which allows for a 20% deduction of qualified business income. The tax burden on small businesses is already incredibly heavy, and allowing the small-business deduction to lapse would not feel like a sunset but rather a tax increase.
Another area of apprehension for Main Street is the looming increase of reduced tax rates for individual income brackets established under the 2017 tax cuts. The small-business deduction is available to businesses that operate as pass-through entities, like S corporations and partnerships. This allows their business profit to be taxed at the owners’ individual tax rates.
However, business income is different from a business owner’s income. Increased business income allows small-business owners to reinvest in their businesses and employees. If Congress does not address the changes in personal income brackets set to expire at the end of this year, 33 million small businesses structured as pass-throughs will face a tax increase in addition to losing the small-business deduction.
Finally, I highlighted the regulatory burdens imposed on Main Street by the IRS, particularly the thresholds on 1099-NEC and 1099-K forms that deplete much of their limited time and resources. The $600 threshold for 1099-NEC has not been adjusted in decades, resulting in increased reporting requirements for small businesses. I asked Congress to consider a one-time adjustment of this threshold to account for the impact of inflation over the years where no adjustment has been made and then an annual adjustment thereafter.
Alternatively, while the threshold for 1099-K has been adjusted, the adjustments are moving in the wrong direction. The IRS threshold reporting requirements for 2024 are set at $5,000 but will be drastically lower in 2025 and 2026, when it will be further reduced to $600.
This will significantly impact small businesses that use online platforms for selling, such as eBay, PayPal, Etsy, Venmo and CashApp, with many in the accounting industry predicting much confusion between business payments for goods and services versus personal payments from family and friends. Congress should reverse the course on lowering the 1099-K threshold amounts and instead work to increase them.
Beyond providing financial advice, a critical aspect of my work often includes offering a listening ear to Main Street business owners and encouraging words when times are tough. Reducing regulatory burdens and protecting crucial tax savings are challenges that can’t be ignored.
The owners I speak to invest their tax savings back into their businesses by way of raising wages and hiring additional employees. They also give money to the local T-ball teams, they sponsor youth trips, and they make a difference in their hometowns. I’m afraid these would be some of the first things to be cut if the deduction expires.
I asked Congress to listen to what small-business owners are saying and act swiftly to make the small-business deduction permanent and reduce regulatory burdens. Each day Congress waits makes it harder for small-business owners to grow, create jobs and give back to their communities.
• Alison Couch is a National Federation of Independent Business member and president of Ignite Accounting & Business Advisors in Columbia County, Georgia.
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