In its 1995 legislative agenda, the National Federation of Independent Business (NFIB) called on the federal government to make major changes in five areas important to small-business owners: taxes, regulations, health care, legal reform and deficit reduction. A number of bills that would bring about some of these proposed reforms are working their way through Congress. CPAs need to follow developments closely so they can help their clients benefit from newly enacted tax and other provisions.
According to Jack Faris, NFIB president, overregulation is "the fastest growing of all government created problems facing-small business owners today" The organization, which represents more than 600,000 small businesses nationwide, including CPA firms, estimated that small-business owners spent one billion hours and more than $100 billion annually on federal paperwork.
Michael J. Knight, principal of the CPA firm Michael J. Knight & Company, Fairfield, Connecticut, and chairman of the American Institute of CPAs small business taxation committee, agrees that regulatory overload is a major problem for CPAs and their clients, especially small businesses. Knight, whose firm's clients are mainly closely held companies, gave examples of legislation he thinks are the most troublesome to small businesses: the Americans with Disabilities Act, the Clean Air Act, the Civil Rights Act and the Fair Labor Standards Act.
"These have so many rules that it's hard to keep track of them, and very few CPAs know as much as they should," Knight said. "In many cases there are hidden tax items in these laws. Or clients may unwittingly be doing something illegal, without their CPAs' knowledge. The cost of complying with regulations, and the paperwork involved in doing so, are so great that some clients may be tempted to cut corners."
Given current federal regulatory requirements and tax rules, as well as the changes being made as many of the provisions in the "Contract With America" are passed by Congress, Knight said CPAs will be called on to do much more for their clients and to become more knowledgeable about their businesses and legislation that affects them. "Knowing taxes isn't enough. As CPA, wear many hats; we are, in effect our clients' controllers and financial advisers and their management, human resources and tax consultants. At my firm, we try to keep up with developments and to be aware of what other advisers our clients need."
This year's legislative changes will require CPAs to do more planning for their clients, he added, sitting down with them well in advance of any important decisions. CPAs should encourage clients to focus on growth, rather than holding onto the status quo.
Small-business agenda. Here is a summary and status report of the NFIB legislative agenda.
* Cut capital gains taxes. Capital gains assets should be indexed for inflation and rates should be cut in half generally and eliminated for investments made in small businesses, the NFIB says. It calls for changes in current laws to encourage entrepreneurship, job creation and economic growth.
* Simplify tax accounting for small firms. Businesses with less than $10 million in gross sales should be allowed to use simplified accounting methods in cash accounting, full expensing of all assets and bad debts and deduction meals and automobile expenses. additionally, they should be exempted from alternative minimum ax calculations, the NFIB says.
* The NFIB also was pushing for the following tax-related goals: eliminating estate taxes for closely-held businesses; raising the expensing limit from $17,500 to $100,000 (allowing businesses to fully deduct the first $100,000 they invest in equipment in the year it is purchased) to grant tax relief, increase cash flow and encourage investment; clarifying the independent contractor definition; relaxation of the rules for home office deduction; and simplification of the pension system. …