Posts Tagged ‘IRS’

28 Suggestions to Save Small Companies

June 17, 2012

In my dialog with the White House and Congress about the burden of Government on my small business, the following proposals will “go out” next week. These proposals would save my company up to 300 staff hours and up to $18,500 annually. Acting on the intellectual property and immigration proposals would open doors of opportunity for my company that are currently too time-consuming, costly or risky for me to open. For a small company like mine, addressing these proposals makes the difference between growing and floundering.

Define a “Small Company” for Simpler Government Processes

PROPOSAL #1 – Establish Small Company Size Guidelines to Qualify for Simpler Government Processes

A Small Company shall have simpler processes to follow to reduce the burden to comply with the law if it meets the following criterion:

  • Fewer than 50 employees.
  • Annual revenue less than $10,000,000.

The following are proposed new, formal IRS size classifications for a company:

SOHO 1 to 4 employees – a “one or two-room” business;
Small 5 to 49 employees – a “one or two-building” business;
Medium 50 to 499 employees;
Large 500 to 4,999  employees;
X-Large 5,000 to 49,999 employees;
Giant 50,000 or more employees.

Assist Business Owners On-Line and by E-Mail

PROPOSAL #2 – Create an Interest Profile for News and RSS Feeds for Business Owners

Create and maintain interest profiles for business owners to facilitate announcements and news by automatic e-mail and RSS feeds from from every Federal government department, agency, organization and Congressional representative.

PROPOSAL #3 – Develop an On-Line “Assistant” to Walk a Conventional Taxpayer through the Reporting Process

Create a profile of the taxpayer with a basic series of questions to establish most of the required complement of forms, the deposit process and the filing process from answers to a series of basic questions.

Identify nuances and special circumstances to address with a more detailed series of questions for the user to answer that have been tailored for the taxpayer.

Create a custom webpage for the user with a hot-linked library of all of the directly applicable publications, instructions, forms, worksheets, opinions and applicable IRS code.  Add hot links to on-line and e-filie processes for the required forms.

Create a a standard .ics calendar event file for each filing deadline, and e-mail them to the user.

PROPOSAL #4 – Confirm On-Line Deposits and Form Filings by E-Mail

Confirm successful on-line deposit transactions by e-mail from systems such as EFTPS.

Confirm successful on-line form filings by e-mail.

Attach PDF copies of all electronically filed forms to the confirmation e-mails.

Write Instructions to be Readable by a Non-Tax Professional

PROPOSAL #5 – Write IRS Form Instructions in “Plain English”

PROPOSAL #6 – Adopt Uniform Style and Organization for IRS Form Instructions

The following “style” and organization would significantly improve the ability of the taxpayer to read and understand form-specific instructions:

  • What this form accomplishes – the most common uses for this form (the 80% of cases).
  • When and where to file this form.
  • Who completes this form.  Who does not complete this form.  Exceptions.
  • Who receives this form.  Who does not receive this form.  Exceptions.
  • Transactions that are reported by this form.  Transactions that are not reported by this form.  Exceptions.
  • Industry-specific considerations.
  • Special circumstances that this form addresses, and how they are addressed.
  • The most common errors applying this form.
  • The most common mistakes made completing this form.
  • Where to go for further information.
  • How to complete the form, line-by-line and box-by-box.

PROPOSAL #7 – Develop Rich, “Wiki” Hot-Linking for IRS Form Instructions

“Hot-linking” terms and definitions would be extremely helpful.  Throughout an on-line or PDF Instruction, terms and phrases are used that the reader may not understand.

“Hot-linking” references would be extremely helpful.  Throughout an on-line or PDF Instruction, many references are given to IRS Code, IRS Forms, opinions and documents from other organizations.

Hot-linking techniques such as these are the basis of the Wikipedia.

Enhance On-Line Systems to Retain and Share Data

PROPOSAL #8 – Pre-populated Forms and Windows with Information from Previous Sessions and from Other Systems

Retain information from session to session and from year to year to pre-populate forms and windows for all electronic form filing and deposit systems.

The following are the most beneficial opportunities to retain data in systems:

  • Session data that does not change such as Company information.
  • Employee information previously entered for W2’s such as names, addresses and SSN.

Share information between systems to further reduce manual information entry and assist in tailoring form flows and information entry demands.

The following are the most beneficial opportunities to share data between systems:

  • A Company’s gross employee tax withholdings and withholding deposits between systems processing 941 reports and W3 reports.
  • Employee information including wages between systems processing 940 (FUTA) reports, systems processing W2 reports, and systems processing State unemployment insurance reports such as TWC.

Currently, on-line systems “stand alone”, and no data is retained.  Instances of redundant data entry requirements are numerous.

Streamline and Consolidate Forms 940 and 941 for On-Line Filing

PROPOSAL #9 – File Form 940 and Form 941 On-Line

Eliminate paper Form 940 for small companies, and build reporting functionality for Form 940 into an on-line system such as the EFTPS system.

Eliminate paper Form 941 for small companies, and build reporting functionality for Form 941 into an on-line system such as the EFTPS system.

Currently, the EFTPS system requires entry of information that is also entered onto Form 941; however, the EFTPS system makes no use of this information except to detect addition errors by the user.

PROPOSAL #10 – Increase the Form 940 Deposit Obligation Threshold

Until Form 940 and Form 941 deposit processes are consolidate, increase the Form 940 deposit obligation threshold amount from $500 to $2,500.  This change would require most small companies to make only one annual deposit for FUTA Federal unemployment taxes at the time of annual form fling.

PROPOSAL #11 – Simplify the Form 941 Deposit Rule for Small Companies

Until Form 940 and Form 941 deposit processes are consolidate, simplify Form 941 deposit rules for payroll-related tax deposits including IRS withholdings, social security taxes and medicare taxes. With regard to small company treatment, the following would be sensible:

  • You do not have an obligation to make a deposit if your accumulated tax deposit obligations for the current quarter and all previous quarters since your last deposit are less than $2,500.  However, you must eliminate any accumulated tax deposit obligation for the 4th quarter of the tax year by making an end-of-year tax deposit.
  • You are a quarterly depositor if you are obligated to make a deposit, and your tax deposit obligation for the current quarter and also the previous quarter are each less than $7,500.
  • You are a monthly depositor if you are obligated to make a deposit, and your tax deposit obligation for the current month and previous two months combined are $7,500 or more, but less than $50,000.

Currently, the Form 941 deposit rules require complicated quarterly and annual loopback considerations to establish the appropriate deposit rule for a company.

PROPOSAL #12 – Consolidate Form 940 and Form 941 into One On-Line Process

Consolidate Form 940 and Form 941 into one combined on-line process.

Update the proposed Form 941 deposit rules applied with thresholds of $3,000 to establish a deposit obligation and $10,000 for quarterly-monthly deposit rule decisions.

Streamline Form 1099 for On-Line Filing

PROPOSAL #13 – Rewrite All Specific Form 1099  Instructions

Rewrite all specific Form 1099 and other information form instructions to use plain english for better readability.

Current Form 1099 instructions are consistently difficult to read and understand.

PROPOSAL #14 – Accept Printed “Fill-in” PDF Paper Form 1099 and other Information Forms

Update the information form processing systems to accept printed fill-in pdf paper Form 1099 and other information form submissions.

Currently, the majority of paper information forms are “red forms” that cannot be printed from a “fill-in” PDF form and submitted.

PROPOSAL #15 – File Form 1099 and other Information Forms On-Line

Eliminate paper Form 1099 for small companies, and build reporting functionality for Form 1099 into an on-line system such as the EFTPS system.

Currently, the IRS “FIRE” online system that accepts information form submissions requires specialized software to create a uniquely formatted file to upload.

PROPOSAL #16 – Increase the Form 1099 Payment Reporting Threshold to $2,500

Increase the common $600 payment threshold for Form 1099 information filings to $2,500.

PROPOSAL #17 – Increase the Form 1099-MISC Payment Reporting Threshold to $25,000 for Payments to Attorneys

Increase the Form 1099-MISC payment reporting threshold to $25,000 for payments to attorneys.

Streamline Form 1120S for On-Line Filing

PROPOSAL #18 – File Form 1120S and Companion Forms, Schedules and Statements On-Line

Eliminate paper Form 1120S for small companies, and build reporting functionality for Form 1120S into an online system such as the EFTPS system.

PROPOSAL #19 – Form 1120S Statement for Other Deductions – Not Required if Less than $100,000

A statement supporting Other Deductions on Form 1120S Line 19 should not be required from a small company if Other Deductions falls below a threshold value such as $$100,000.

PROPOSAL #20 – Form 1120S Schedule M2 – Not Required for only One Shareholder

Form 1120S Schedule M2 should not be required from a small company with only one shareholder.

PROPOSAL #21 – Form 1125A – Not Required if Cost of Goods Sold Less than $100,000

Form 1125A reporting Cost of Goods Sold and changes to inventory valuation should not be required from a small company with a cost of goods sold corresponding to line 8 of the form that is less than a threshold value such as $100,000.

PROPOSAL #22 – Form 4562 – Computers and Cellphones No Longer Considered to be Listed Property

Listed property in the context of Form 4562 should not include equipment that is essential for every small company.  Computers and cellphones should no longer be considered listed property.  Part V of Form 4562 should not need to be completed to report the depreciation or the Section 179 expensing of computers and cellphones.

PROPOSAL #23 – Form 4797 – Not Required for Gain or Loss on Sale is Less than $2,500

Form 4797 report gains and losses on the sale of company assets should not be required from a small company if the gain or loss is less than a threshold amount such as $2,500.

Assist Small Companies to Patent and Use Intellectual Property

PROPOSAL #24 – Permit Provisional Patent Application Renewals by a Small Company

Permit a small company to renew a provisional patent application twice to preserve the opportunity to file a conventional application within three years instead of only one year according to current law.

A small company that files a provisional patent application may not be able to complete an invention disclosure and drawings before the provisional application expires.  Further, a small company may not be able to afford legal costs to complete and file the most prudent patent application before the provisional application expires.  The ability to renew a provisional application would be a tremendous benefit.

PROPOSAL #25 – Shield Small Companies form IP Litigation Costs and Ruinous Settlements

Shield small companies from intellectual property litigation costs that might be ruinous.  Provide mandatory pro bono arbitration services for a small company to address infringement in lieu of courtroom litigation.

Shield small companies from adverse settlements that might be ruinous.  Defer settlement from a small company until revenue derived from the sale of infringing products or services exceeds a threshold annual amount or until total company revenue exceeds a threshold amount.

These considerations reward a small company that might make the best use of intellect property as well as the company that owns the intellectual property.

Streamline the H1B Visa Process for Small Companies

PROPOSAL #26 – Waive H1B Visa Premium Processing Fee for a Small Company

Waive the Premium Processing fee for an H1B visa for a small company.  A small company can not afford the time to wait for the conventional H1B process or the money to pay for expediting the application.

PROPOSAL #27 – Remove Dept of Labor from H1B Process for a Small Company

Waive the requirement for a Department of Labor Prevailing Wage or PW Determination in the H1B process for a small company.

Waive the requirement for a Labor Condition Application or LCA in the H1B process for a small company.

Waive the requirement to recruit from current workers in the industry in the H1B process for a small company.

This relief of burden allows the small company to act quickly (in as few as two months instead of nine months currently) to hire the most talented staff possible in the shortest timeframe possible for the least cost possible.

Relax DCAA Compliance for Small Companies

PROPOSAL #28 – Relax DCAA Timekeeping Requirements for a Small Company

Relax the DCAA requirement to maintain timekeeping and time sheet processes for small companies to allow weekly routine e-mail submission of time sheets in lieu of more stringent systems that require hand and ink time sheet completion or a secure electronic time entry system.

The Defense Contract Audit Agency (DCAA) regulation section 2.302 require any company that seeks to qualify or actually engage with the government for a contract of any kind including a grant for $250,000 or more to adopt stringent timekeeping processes.  The timekeeping process is highly burdensome for a small business.

What do you think?  Stay tuned for news!

How Large is a Small Business?

June 4, 2012

As my dialog with the White House and Congress to reduce the Government’s burden on my business unfolds, a question in a conversation emerged:

How large is a small business?

To the uninformed, this would seem to be a pretty simple question to answer – less than $ in revenue and/or less than # of employees, and the business is classified as a small business by the Government. There is guidance from the government – some pretty clear, and some implied by legislation, but in my view, it is all baloney.

For the record, my S-Corp engineering consultancy is best classified as NAICS 541330; my LLC medical device design company is best classified as NAICS 541712.

Here are several “footprints” to answer this question: How large is a small business?

The Small Business Administration –

What is a Small Business? | SBA.gov

From this link, you can find a comprehensive pdf document Size_Standards_Table to identify revenue (and numbers of employees for some industries) thresholds that define a small business specified by NAICS code.

NAICS 541330 – $14M revenue or less is a small business;
NAICS 541712 – 500 employees or fewer is a small business.

500 employees? That is a HUGE research firm… Businesses in certain classifications are small with up to 1500 employees (though many SBA classifications with employee limits top out at 500)! These are certainly not small businesses as far as I am concerned.

The Internal Revenue Service –

Small Business and Self-Employed Tax Center

From this link, after a few clicks and some browsing, you can find this introductory publication for small business p334 Tax Guide for Small Business. The focus on this publication is a high level overview of terms and definitions, accounting procedures and processes for the novice that satisfy IRS expectations of a business, but nowhere in this publication does it define a small business… This part of the IRS website is dedicated to service “small business with assets under $10 million.” So, there is one revenue number to define a small business. The focus in this part of the IRS website, though, and in this publication is on the sole proprietorship organization of business, and not small corporations, and not applied to some particular measure of revenue or employee size that the SBA utilizes to classify businesses.

By the way, Pub 334 has specific text dedicated to treatment of “statutory employees” – what are they? Darned if I know – never defined…

With some further browsing (and being a knowledgable business owner and regular IRS website visitor), I located the following article, S Corporations.This part of the IRS website is more appropriately focused on my particular business organization, but this article still leaves the question largely unanswered: “What is small?” Fewer than 100 shareholders is the measure of this classification of small business.

Reference to IRS Section 179 provides for immediate expensing of capital assets up to $500,000 – offset by qualified property exceeding $2,000,000 – to benefit the small business. Again, a reference to assets, and to not revenue or employees.

And finally, reference to the Small Business Health Care Tax Credit for Small Employers (part of the Affordable Care Act) which applies to employers with fewer than 25 employees establishes another reference to “small”. After reading portions of the ACA (26 hrs or so), and reading thoroughly the IRS website articles on this topic (another 10 hrs or so), and reading the instructions for form 8941 (with an estimated burden to read and understand, prepare and submit is 17 hrs or so), well,  of banging my head against the wall on this for 50+ hours to see if I quality for the 35% credit for healthcare insurance premiums I pay, I still don’t understand this topic sufficiently to know… But it does add another measure for “small” – fewer than 25 “equivalent full-time employees” or FTS’s. Yes, this is a rational measure for “small”.

Dad-gum-it, I know that the IRS has some specific language defining a small business… I can’t recall where I saw the definition in the IRS Tax Code.  I’ll find it some other time.

Pragmatically, the IRS definition of small seems to be up to $10M in total assets; fewer than 25 employees. This is a more reasonable criterion for a small business than the SBA guidance.

United States Census Bureau –

Statistics about Business Size (including Small Business) from the U.S. Census Bureau

The United States Census Bureau compiles encyclopedic statistics about business size in the US. About 3/4 of all businesses have no payroll – they are fundamentally sole proprietors.  The Census Bureau’s statistics are compiled for businesses with fewer than 5, 10, 20, 100, 500, and more than 500 employees.  2008 statistics for businesses in rough and round numbers are as follows:

Classification: Employment_Size #_Firms. #_Employees. __Annual_Payroll ($1,000)
Nonemployer_firms (proprietorships) 21,351,320 n/a n/a
1-4 Employees 3,617,764 6,086,291 232,062,907
5-9 Employees 1,044,065 6,878,051 222,504,912
10-19 Employees 633,141 8,497,391 293,534,352
20 to 99 Employees 526,307 20,684,691 774,589,335
100-499 Employees 90,386 17,547,567 706,476,693
500+ Employees 18,469 61,209,560 2,901,340,979

(sorry for awkward table formatting…)

Notice that an “order of magnitude” decline in the number of businesses counted occurs at the 100 employee measure.

Wikipedia –

I am reluctant to site Wikipedia, though it is convenient:

Small business – Wikipedia, the free encyclopedia

Small and medium enterprises – Wikipedia, the free encyclopedia

My Opinion –

So, how large is a small business? My business is a small business with two employees currently. The Local doughnut shop has 4 employees (the entire family) – clearly a small business. The local Quick-Kar Oil Change store has 14 employees – it is a small business from anyone’s perspective – clearly a small business. The local “watering hole” has 43 employees including part timers – still a small business.

Here is where I think I will talk from when I refer to the scale of a business:

SOHO – 1 to 4 employees – a “one or two-room” business;
Small – 5 to 49 employees – a “one or two-building” business;
Medium – 50 to 499 employees;
Large – 500 to 4999  employees;
Giant – 5000 or more employees.

Anyone have an opinion to offer? Yes, I know these numbers aren’t nice powers of 10, but they are orders of magnitude!