Small-business owners should invest in software to deal with tax rates
August 27, 2013
Many experts would say that small businesses are the reason the U.S. is able to sustain a healthy economy, but if this is true, why are they being taxed so much? According to a recent study released by the National Federation of Independent Business and the S Corporation Association, S corporations are scheduled to pay the highest average effective tax rate, at more than 31 percent of their income, while partnerships are set to be drained of almost 30 percent of their profits.
"This study confirms what many Americans already know: Our broken tax code is too complex and imposes an unfair burden on small businesses - the lifeblood of local economies," Rep. Tim Griffin (R-AR).
Why are these businesses seeing higher taxes?
The IRS defines S corporations as entities "that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes," and partnerships are a "relationship existing between two or more persons who join to carry on a trade or business." While S corporations owners are taxed for their business directly on their income tax and partners share company assets together, these firms are not much different than normal enterprises. However, they are being taxed a lot more.
Entrepreneurs who plan to open up one of these types of firms should make sure to use a fixed asset management software that has built-in knowledge of tax laws. It can often be difficult for business owners to keep track of taxes, which is why these solutions can be a main factors in making firms more effective, while also ensuring company equipment is being properly monitored.
The US needs to fix small business taxes
The study revealed corporations are paying an effective tax rate of nearly 18 percent, which is lower than the 19 percent clip the smallest S corporations are subject to pay. Rep. Dave Reichert (R-WA) believes the Government needs to do something to help all types of small-business owners succeed in their marketplace.
"We know Main Street businesses employ most of the workers, and this study shows they pay lots of taxes too," said Reichert. "Tax reform needs to be comprehensive, and it needs to level out the tax burden paid by businesses of all types."