Consideration of any tax reform for small business must take into account the difficulties small-business owners face when deciding how to structure their business and comply with the Tax Code’s complex requirements, said Dewey Martin, a Hampden, Maine-based CPA.Martin, who testified at the recent hearings before the Senate Finance Committee on business entities and small-business tax reform, is a small-business owner himself, as well as an advisor to 200-plus small-business owners and chair of the Accounting Department at Husson College in Bangor, Maine.
“It’s important for lawmakers to understand that for tax purposes you cannot separate the business owner from the business,” said Martin. “The majority of small businesses are organized as pass-through entities, meaning that most small- business owners will pay their taxes at the individual level, rather than the corporate level. From a tax perspective, the pass-through model makes sense for a typical small firm. A small business has fewer financial resources than a typical larger corporation, so to pay a double tax — first at the corporate level and then on wages — would be onerous. This is why changes to the individual tax rates are so important to small firms.”
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