The last few years politicians have been attempting to pull a fast one on small business owners by forcing them to adopt an accounting method which drives revenue into the coffers of the federal treasury – at least on paper.
It’s called “Accrual Accounting” and the simple way to look at it is like this. You are a small business. You sell your product. You have accounts receivables on those sales. Traditionally you will not be taxed on the money you have not yet received. You are taxed when the money actually comes in. Seems logical, doesn’t it? It is.
The new accrual accounting method would tax that money before it ever comes in your door. I know it sounds crazy, but it is a real possibility.
The switch would also create a dangerous precedent that could be used against individual taxpayers, not just businesses. Since a portion of accounts receivables never actually come in at all, you could be taxed on money you’ve never even had.
Americans for Tax Reform calls it a “phantom tax on phantom income.” It is perhaps one of the worst ideas ever to come through Congress and that’s saying a lot. Luckily, it appears to be headed to where it belongs…the garbage. This is thanks to the leadership of Chairman of the Ways and Means Committee, Kevin Brady, and with the support of Rep. Jim Jordan (R-OH).
Americans are anxiously awaiting what the Trump administration will do with our antiquated system of taxation. Most people are expecting some sort of “massive” tax cut to spur economic activity as promised on the campaign trail.
This crafty little accrual accounting method switch would have been simply another tax increase that would destroy American jobs.
Sneaking this accounting gimmick through would send us going the opposite direction from what President Trump has promised in making America great again.
Conservatives have long opposed tax increases on small businesses knowing that they are the life blood of America’s economy. Accrual accounting sounds like an idea from the book of accounting tips from Bernie Madoff!
Sticking to the cash-basis method will provide the security our businesses need in a time when many things could be changing. Accounting changes like that, besides being a secret tax, also would significantly increase the mountain of paperwork already burdening business.
America is on the cusp of an explosion of pent up investment and business growth that will provide millions of new jobs…as long as we fan the flames of our economy. Switching to accrual accounting would be more like tossing a bucket of water on the smoldering economy that has just limped through the Obama days.
Hopefully, Chairman Brady will stand strong for America against the pressure to make changes like this that are utterly antithetical to what the Trump administration has promised to do. As Trump turns his attention to the economy many people hope to see those campaign promises fulfilled by watching regulations and taxation decrease, while investments seriously increase.
We will know it’s working when we see businesses building new facilities and entire industries coming back online after years of treading water. America is expecting a lot from President Trump and nothing short of a booming economy will be accepted.