Tax Equality for Micro-Business
The NASE Position:
The NASE supports having an equal and fair playing ground for micro-business. The NASE feels strongly that tax relief and simplification is necessary for small businesses to succeed. Any tax relief must include provisions favorable to the self-employed and micro-businesses.
Section 179 Business Equipment Expensing
The NASE supports a permanent increase of the deductible for business equipment expenses to at least $40,000 and an increase of the phase-out limitation for equipment expensing from the current $200,000 to $400,000, thereby expanding the type of equipment that can qualify for expensing treatment. Business equipment is essential to the startup and continued efficiency and success of a small business. Also many small businesses prefer to take a deduction rather than depreciate the cost over several years.
Business Meals
It is essential to the NASE Membership that the business meals deduction be increased to at least 80 percent. Tens of thousands of self-employed people rely on the meal and entertainment deduction as a way to promote their products or services to other business people and individuals. In this way, small-business owners find the deduction to be a critical, cost-effective way to advertise their products or services without the need to resort to expensive and inefficiently targeted media ads. Other small-business people, such as independent sales representatives, are constantly on the road promoting their products. These individuals are particularly discriminated against by a cut in the meal and entertainment deduction because their business meal expenses are largely unavoidable due to their need to travel.
Background:
Small businesses have long been treated unfairly in comparison to large businesses. This inequality is visible in the tax code, in the health care system and in the pension system.
In 1986, the business meal and entertainment deduction, which is so essential to the self-employed, was reduced from 100 percent to 80 percent, and then lowered to 50 percent in 1993. Officially, the deduction was reduced because “some portion of business meal and entertainment expenses represents personal consumption.” Unofficially, Congress reduced the deduction as a backdoor means of raising taxes.
Under current law, a taxpayer is permitted to deduct 50 percent of meal and entertainment expenses for tax purposes, as long as the expenditures are considered ordinary and necessary business expenses. Adequate safeguards exist against taxpayer abuses of this deduction:
No deduction is permitted when the meal and entertainment expenses are considered lavish or extravagant under the circumstances. A deduction is not generally permitted if the taxpayer does not maintain adequate records and corroborative evidence.
Legislative Activity:
The NASE will actively advocate to make permanent the expensing provisions and individual income rate reductions passed in the economic growth package during the 108th Congress.
In the 108th Congress, the Jobs and Growth Reconciliation Tax Act of 2003, a $550 billion economic growth packaged designed to stimulate the economy, became law. The legislation incorporates most of President Bush's original economic growth proposal from that year.
Instead of the elimination of the double taxation on dividends, the bill treated dividend income like capital gains and reduced the tax rate on both to 15 percent, or 5 percent for lower-income taxpayers. The bill also accelerated tax rate cuts for individuals that were being phased in under the 2001 tax law, making all of them effective retroactive to Jan. 1, 2003. The change would last only for three years. The reduced rates would then sunset, returning to levels specified in current law.
The measure also increased the child tax credit from $600 to $1,000 through 2005; provided enhanced tax relief for married couples for three years; and expand the 10 percent tax bracket, the lowest, to $7,000 for individuals and $14,000 for married couples filing jointly, again through 2005.
The bill provided $38.7 billion in tax cuts for businesses. The cuts included 50 percent "bonus" depreciation deductions in the first year for equipment bought after May 5, 2003. That provision would lapse after 2005. Also included was a temporary increase to $100,000, from $25,000, in the expensing of certain business equipment. That would be in effect through 2007. And finally, the bill would extend through 2005 the five-year net operating loss carryback period.
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