President Trump promised American taxpayers, including millions of small business owners, that they would pay lower taxes, keep more of their money and reap the economic benefits of tax reform for generations to come. But six months after the president signed into law the most sweeping reform to the nation’s tax code in over a generation, many Americans continue to be confused about the law’s impact on their pocketbooks and how to take advantage of the new system. A new Monmouth University poll finds approval of the tax reform law has slipped to 34 percent.
As millions of U.S. small business owners pay their second-quarter estimated taxes, last year’s tax reform law would suggest they should be paying less and keeping more of their hard-earned money. The problem, which we and other small business associations have found, is that many small businesses don’t have a clear understanding of how the new system will impact them. They weren’t prepared enough for the law, and are confused about whether the reform policies will help or hinder them during tax time.
The tax law is based on the simple principle of small businesses reinvesting their tax savings directly back into their day-to-day business operations — purchasing equipment, investing in expansion, and/or hiring employees — to help spur overall economic growth.
In a recent survey of our membership, we found that an overwhelming majority — 83 percent — didn’t completely understand how the law would impact their business. This is an alarming number given how the tax system is supposed to work. If small business owners don’t know how to make the policies work for them, the economic churn that is to follow will ring hollow. Small businesses must be planning throughout the year how to use their tax savings to grow their businesses. For the law to work as it was designed, these businesses cannot wait until the annual April tax return deadline to realize the savings and then expect to put it to work.
We also found that a whopping 90 percent of respondents felt the government didn’t adequately prepare them for the changes. You may recall that the law was shuttled quickly though the House and Senate, without many hearings, before landing on President Trump’s desk for his signature.
If small business owners don’t understand the law, what good is it? The success of this law — and the booming economy that President Trump and his administration continue to remind the American public will be the result — requires business owners to be a partner in the process by putting their savings to work in the financial system. Buying equipment can help boost the sales of a vendor, and bringing on an employee means one less person who is unemployed.
The lack of understanding and preparedness underscores my next point: survey-takers were uncertain (split 50-50) if they were going to have to pay more or less in taxes next year. In fact, two-thirds indicated that it will be more difficult to complete their taxes for 2018 because of the law. Sadly, there is much uncertainty about this law. But perhaps these two data points could change if small business owners were educated about how to make the law work for them.
Nine out of 10 survey-takers indicated the government can still do more to reduce their tax burden. It wouldn’t take another big tax reform bill; minor tweaks to the tax code would go a long way toward supporting small businesses. Further expanding the standard deduction to the entire Schedule C could save hundreds of hours of time in completing one’s tax return; amending the definition of employee to include owners could unlock a host of financial benefits for small business owners; and simplifying the definition of an independent contractor to clarify a worker’s status could ease the burden and stress of reporting payments made to workers and assist in complying with all tax rules and regulations.
We supported tax reform last year because it would save business owners time by simplifying the process for completing and filing tax returns. This can translate into fatter bottom lines, a reduction in taxes and more money in their pockets. Schedule C filers will see firsthand the impact of tax reform and subsequent tax savings throughout the year as they pay their quarterly estimated taxes.
While there is still a great deal of uncertainty about the law, we continue to believe that the more they know about the law, small business owners win. But in order for tax reform to work for both them and the American economy, they must understand how to put the tax law to work for them.
This information is readily available. There are thousands of articles, calculators, guidelines and websites as close as the nearest mouse click to help small business owners grasp the power of tax reform. We strongly advise business owners to invest a little of their valuable time in tax reform research. Grab your favorite coffee beverage, open your favorite browser, and take some notes. This tax reform package is a powerful tool available for use by small business owners, but it must be used correctly in order to be effective.
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