Wednesday, June 1, 2011

Entrepreneurs Likely to Lose Tax Break


The 2010 Small Business Jobs Act allowed self-employed individuals including freelancers the ability to deduct their health insurance premium costs on last year’s taxes. However, this may be short-lived as there are two bills currently fighting it out on the floor of Congress at present. One bill may extend this tax break permanently for small business owners, while the other may remove this entirely as justification for the home office deduction. Which one wins depends on several factors, including the push for a more level playing field between the self-employed and traditionally employed individuals who already benefit from having their health insurance premiums deducted on a pre-tax basis.

Early in May, Kristie Arslan, the proactive executive director of the National Association for the Self-Employed (NACE), spent time in Washington lobbying for the extension of section 2042 of the Small Business Jobs Act of 2010. Hoping to get a positive response from senators who are champions for the small business community, she is determined to make sure that freelancers and entrepreneurs get a fair break. “Our policy isn’t focused on new businesses and only when they are successful are we going to give them preferential tax treatment through tax deductions,” Arslan stated. “We have to shift our focus on helping businesses at the start up.”
In the last ten years, it’s a fact that the majority of job creation has directly come from newly formed small businesses, many of which are in the hardest hit areas of the nation. One positive aspect of the Small Business Jobs Act was that it gave entrepreneurs a leg up by allowing them to make an impact on their bottom line with a full health insurance deduction. Taking this away will only further denigrate the efforts that small business owners have made to restore the US economy and the livelihoods of millions of American citizens.

According to the most recent figures from the Joint Committee on Taxation, the Small Business Jobs Act has saved an estimated $1.9 billion just in 2010 alone. For many small business owners, these savings were considered to be more desirable than even the home office deduction that has been around for some time. A survey conducted by the Small Business Administration earlier this year indicates that less than half of all small businesses claimed the generous $1,500 home office deduction for fear of being audited or because they didn’t want to deal with the complexity of filing for this deduction in the first place. It seems that the health insurance premium deduction was more favorable because it made a bigger impact with self-employed individuals as a whole.

However, what will Congress do when faced with a steep deficit in the USA right now? With such appeals from SMBs in progress such as the 1099 reporting requirements of 2011, which looked to complicate the lives of many entrepreneurs, it seems as if our government may be forgetting the very bedrock on which this nation was formed. If we are to see any positive changes in the economy and a way to cope with the overwhelming debt that the United States has found itself in, we must do what it takes to back bills that protect the well-being of the small business community. Look for a continued gridlock as lawmakers squabble over this dilemma in the coming election season.

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