BALANCING THE US BUDGET DEFICIT ON THE BACKS OF THE SMALL BUSINESS OWNER


Historically speaking the sub chapter S corporation has been a great vehicle for small business people. The corporations have allowed a small business person the save on self employment taxes and not have to pay double taxation on dividends. However, Rep. Donald Manzullo, chairman of the House Small business, has said the IRS plunged “full ahead, pell-mell, after the mom-and pops,” in a feisty hearing with IRS Commissioner Mark Everson. The IRS claims that small businesses can make up much of the $345 billion tax gap as of 2001. They say that incorrect reporting of self employment taxes and business income is significant.

Rep. Sue Kelly, R-N.Y. says that is because small businesses are confused about tax laws. The IRS disagrees and says that they just are not reporting all of their income. So, the IRS is launching a $100 million research project to audit more small businesses. They are choosing 5,000 sub chapter S corporations as part of the project. Since sub chapter S corporations are used primarily by small business people the audit will be targeting the mom-and-pop businesses. The IRS funding for audits increase 50% for the 2006-2007 audit years, so be prepared.

Since Washington cannot control its’ own spending the only way government can try to narrow the budget gap is to collect more in taxes from the small guy.