Home > Taxes > Congress and the IRS work together to hurt small business owners

Congress and the IRS work together to hurt small business owners

January 9, 2013

Schild_closedFrom a tax preparer standpoint 2013 is turning out to be an interesting year. The year began with Congress and the President coming together to stop the fiscal cliff! Err, well… Stopped it on January 3, after we technically already fell over the edge (and yet the world didn’t end). This was done by passing the American Taxpayer Relief Act of 2012 (ATRA). Because of ATRA the IRS has announced there will be delays in the processing of certain taxpayers with ‘complex’ 1040 returns. Both of these action work together to hurt small business owners.

First lets review some basics of ATRA:

  • Title I of ATRA makes permanent the complexity of the Bush Tax Cuts. Why make it simple for a small business owner to understand the tax ramifications of doing business? That would be too easy.
  • Title II of ATRA extends tax ‘fixes’ for issues caused by big government. I can’t wait to see the future fixes for problems caused by these fixes. I’m guessing it involves ‘taking more money from the rich’ (i.e., business owners).
  • Title III of ATRA is where small business really gets attacked. It’s here that the supposed “business tax extenders” exist. However it is full of pork for special interests. By including so much pork in Title III Congress has created an uneven playing field, making it harder for small business owners to survive.
  • Title IV of ATRA is interesting. It’s a whole section dedicated to subsidizing the green industry! It doesn’t matter that money is being taken from hard-working tax payers (especially business owners); apparently it only matters that a politically correct industry receive massive taxpayer subsidies as corporate welfare.
  • Title V of ATRA hurts small business owners by keeping able-bodied Americans out of the  workplace! Expansion of the economy is hard when the labor force has no incentive to actually work. Without a willing workforce small business owners simply have no markets to expand into.
  • I haven’t posted my thoughts on Title VI or VII yet. But I can give a brief spoiler of these two sections: extension of the bad government expansion into the healthcare field, extension of agricultural welfare.

I think that pretty well sums up how Congress is working to hurt small business owners. Now on to the IRS.

Since a large percentage of small business owners are setup as a sole-proprietor or a sole-member LLC they will file Form 1040. The IRS has stated that they won’t begin to process non-complex forms until January 30, 2013. However ‘complex’ returns will take until late February or March before the IRS will start processing them. Many small business owners use one ore more of these ‘complex’ forms (Form 4562 – Depreciation of Property is a good example). I have posted a full list of the likely delayed “complex” forms here.  By delaying the processing of these forms it will increase the chance small business owners have to pay a penalty they might not have had to otherwise. This is true because of the following chain of events:

  1. In 2013 Tax Preparers start following new IRS mandated rules. These rules were lobbied for by big Tax Preparation firms and hurt independent (small business) tax preparers.
  2. Congress and the President did not actually get ATRA passed until the first few days of 2013. By this time the IRS should have had forms finalized for a month or two. However with the uncertainty of what tax law would be for 1012 it was impossible for the IRS to prepare accordingly.
  3. The IRS will not actually get the ‘complex’ tax forms released until late February or March.
  4. It will take at least a week for software vendors to update the forms after the IRS releases the official forms and instructions. We are up to early March and almost into April at this time.
  5. Because the tax preparer rules have created hardships on independent tax preparation services there will be a shortage of preparers industry-wide. That means the tax preparation businesses that do exist will be doing a LOT of returns with very little time to complete them.
  6. Many filers with these ‘complex’ returns will have to file extensions because of the above circumstances. However here is the catch 22: an extension to file is NOT an extension to pay. If a taxpayer owes any liability from their Form 1040, that liability must be paid by April 15, 2013. Even if the taxpayer files an extension that does not extend the payment requirement.

Many small business owners will end up paying penalties simply because the IRS and Congress have worked together to hurt small business owners. Now thats a real world example of ‘unintended consequences’. If you don’t believe the above scenario look at Tax Year 2011, the same happened to a smaller extent. This year will simply be a larger version of the same chaos.

Categories: Taxes Tags: , , ,
  1. April 29, 2013 at 11:38 pm

    Hey there! I’ve been reading your blog for a long time now and finally got the bravery to go ahead and give you a shout out from Houston Texas! Just wanted to say keep up the excellent work!

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