It’s that time again! As I do once every year, I’m turning over the blog to my readers for the last week in August. This year, readers had the opportunity to answer one of three tax-related questions; each of the questions is related to pending legislation or active issues in Congress.
I received a number of great responses. In order to have a balanced mix of posts, I have read through all of the submissions and have chosen those that represent a mix of viewpoints on each of the three issues.
Our next guest post was submitted by Deborah Sweeney:
One of the most controversial issues over the past year has been the issue of corporate tax reform. Do corporations pay their fair share? What, if anything, would you do to alter the current corporate tax structure?
One of the biggest problems when discussing corporate tax reform is getting past the general perception of what a corporation actually is. Ask a random batch of people off of the street to name a corporation, and you’ll likely get answers like McDonald’s, Walmart, or Apple – in other words, really big, multi-national businesses that make a ton of money. While I completely understand the desire to make these economic powerhouses pay their fair share, it’s the local mom and pop grocery store down the street I turn my head toward thinking about.
The corporate structure is not reserved for the rich and powerful, and Main Street USA has plenty of small corporations chugging away and injecting money into their community. Small business is, after all, the backbone of the American economy, and there are plenty of small corporate entities that pay more than their fair share.
Take S-Corporations, for example. S-Corp tax elections were originally created so that smaller corporations – those with 100 shareholders or fewer – would be able to avoid “double taxation.” Essentially, when a business is taxed as a normal corporation, it has to pay corporate tax on any earned income, and then everyone who derived an income from the corporation has to pay personal income taxes, effectively taxing business earnings twice. An S-Corporation allows income to flow through the business, avoiding corporate taxes, directly to the shareholders, who then pay their personal income tax.
S-Corporations are a good thing because they allow small corporations to keep more money to invest in the business, but the general perception of corporations as somehow being “evil” has led many states to pass laws effectively fining S-Corporations for not having to pay a corporate tax. These extra fines and taxes can be really detrimental to a new small business trying to break into the market.
Corporations allow the men and women who found small businesses to protect their property and families by turning the business into its own, separate legal entity, capable of carrying its debts and assets. 96% of businesses in America have fewer than 50 employees, and many of these businesses understandably choose to incorporate. We cannot approach corporate tax reform with an all-or-nothing understanding of corporations, and have to remember that, when we pass laws that unfairly target every, single American corporation, we are hurting small business.
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Thanks, Deborah! Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.
