As President Donald Trump and the GOP rush to enact tax reform, small-business owners and advocates are speaking out on what taxing issues are crippling them and the reforms they would like to see. Republicans in the U.S. House of Representatives released on Thursday a tax bill, the Tax Cuts and Jobs Act, seeking $1.5 trillion over 10 years. The bill cut the tax rate for small business to 25 percent. With the small business sector creating two-thirds of U.S. jobs, freeing up money to help them invest more in their business is critical, say many experts.
"This bill is a big win for small business," according to Keith Hall, a CPA who is president and CEO of the National Association for the Self-Employed. "Anything that simplifies the tax code and frees up more money for small businesses to reinvest in their enterprises is a boost."
"Smaller businesses really are, in a lot of ways, the drivers of the economy," says CPA Robert Bernstein, a partner in Grassi & Co., a New York City area accounting firm.
Taxes consistently emerge as the No. 1 issue for small business in the CNBC/SurveyMonkey Small Business Survey. In the recently released third-quarter edition, taxes once again topped the list of "critical issues," ahead of health care and regulation. The survey, which had more than 2,200 respondents, was released in late September.
That same month, Trump proposed a variety of tax-reform measures, both for individuals and business. The reforms to individual tax rates would affect small-business owners, who are often taxed on their income at individual tax rates. The Senate last week approved a Republican-backed fiscal 2018 budget that will enable Republicans to pass tax legislation through the Senate with 50 votes or more.
"The vast majority of small-business owners pay taxes through their individual return," says Dave Yeske, CFP, managing director of Yeske Buie, who works out of the firm's San Francisco office. He is also the director of Golden Gate University's financial planning program.
When it comes to individual taxes, the House bill reduced the number of tax brackets from seven to four, with tax rates of 12 percent, 25 percent, 35 percent and 39.6 percent. Current rates range from 10 percent to 39.6 percent.
More from the CNBC/SurveyMonkey Small Business Survey:
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Tax reform blind spot
On the business side, the corporate tax rate would be reduced from 35 percent to 20 percent, a move many say will make American companies more competitive with those around the world.
Trump is also proposing a 25 percent tax on sole proprietorships and partnerships — known as pass-through businesses — which would be lower than the individual tax rates many currently pay. Currently such companies pass their earnings through to their owners, who are taxed at their individual income rates which can be as high as 39.6 percent.
The GOP plan revealed on Thursday set the pass-through rate at a maximum of 25 percent, but to deal with concerns it could be abused by individuals rather than truly benefit small businesses, the GOP bill includes prohibitions on what kinds of businesses qualify for this tax reduction. The tax reform bill also allows businesses to immediately write off the cost of new equipment, as well as business loan interest.
But the limitations on the pass-through tax reduction immediately brought opposition from the National Federation of Independent Businesses, which said it would not support legislation that didn't benefit all small businesses. The SBE Council, another small business and entrepreneurship lobby group, did not come out against the tax reform bill but said it would work to make sure "the vast majority of small businesses" aren't excluded from the pass-through tax reduction, and that "fair and realistic rules ... do not exclude legitimate profits from the lower rate."