Small businesses and their workers are hit the hardest by the burdens and regulations in our overly complex tax code. Tax compliance costs are 65 percent higher for small businesses than big business, costing them $19 billion per year. We need small businesses doing what they do best – creating jobs and growing our local economies – not buried under mounds of paperwork.
The bill we have before us today is the right step forward to level the playing field between the small businesses on Main Street and big businesses. If a small business chooses to operate as an S corporation for tax purposes, we should ensure that they have the ability to access certain capital without tax penalties.
Under current law, an S corporation is subject to an entity-level tax at the highest corporate rate on certain built-in gains of property that it held while operating as a C corporation. The tax applies to gain recognized within ten years from the date that the C corporation elected to be an S corporation, and in the past, Congress has shortened that period to five years. This bill would make permanent the five year period, eliminating a significant deterrent that often discourages closely held C corporations from electing S corporation status, thus subjecting them to double tax.
Additionally, we should ensure that S corporations receive the same treatment as partnerships when it comes to charitable donations. By achieving parity between different businesses, we can encourage all small businesses to continue their generous support of charitable activities.
This legislation is supported by 35 groups representing thousands of small businesses and their workers who wrote that this legislation will allow small businesses to “make decisions based on what is best for the company rather than the dictates of the tax code. At a time when our economy badly needs increased investment, allowing more companies to access their own capital is an important step.” Additionally, they write, this legislation “would allow America’s S corporations to be more active and supportive of much-needed charitable activities.”
This is a bipartisan, commonsense bill that will give small businesses some much needed relief from the burdens of the tax code, and allow them to make new investments and create new jobs.