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Tax paperwork breaks coming next year for a
million small businesses
By Kay
Bell • Bankrate.com
Small-business owners have the same problem
with the Internal Revenue Service that the rest of us do: too many
complicated forms to fill out.
Unfortunately for businesses, dealing with tax
paperwork isn't limited to April. Business tax filing of some sort
is a constant hassle.
Now a bit of relief is in sight.
Beginning Jan. 1, 2001, businesses that owe
less than $2,500 in quarterly employment taxes can file the forms
every three months instead of 12 times a year.
Different timetables,
more paperwork
All employers must deposit the income taxes they withhold from employees,
along with their Social Security payroll taxes.
Currently, the option to pay these taxes quarterly
is available only to businesses that collect less than $1,000 in
these taxes each quarter. Companies that take out more employee
taxes than that have to pay them every month.
Not only does that mean more tax money to keep
track of, it means additional paperwork.
All businesses already must file Form 941, Employer's
Quarterly Federal Tax Return, to report employment tax liability.
Those employers who can pay employment taxes quarterly can send
the money in when they file the 941.
But employers who must deposit the taxes monthly
also have to file Form 8109, Federal Tax Deposit Coupon,
with each of those payments. This filing duty is in addition to
the quarterly Form 941.
A million companies will
benefit
Raising the tax threshold from $1,000 to $2,500 means a dozen fewer
forms to file each year for 1 million small businesses, according
to the IRS. The IRS says these small companies now pay almost 13
percent of the nation's $52.7 billion in annual business employment
tax deposits.
The firms, trade organizations and pro-business
members of Congress had been pushing for a higher threshold since
the last change in 1998. The limit went from $500 to $1,000 that
year, but the business community argued that it was still unrealistically
low.
Advantages for business
and Uncle Sam
Tax officials say the latest change should ease administrative hassles
and help businesses better manage cash flow. But the affected companies
aren't the only ones who will benefit.
The IRS estimates that its workload should diminish,
too. With fewer employment tax filings, the agency expects a 70
percent decrease in the number of employment tax notices it usually
sends out. Fewer filings also mean fewer chances to make mistakes,
consequently reducing the associated penalty situations that tie
up both businesses and tax examiners.
"Like the small business community, we
want to have an easier, more efficient system for administering
federal tax deposits," said Joseph Kehoe, commissioner of the
IRS' Small Business/Self-Employed Division. "This is a step
in the right direction."
Senate Small Business Committee Chairman Christopher
Bond, R-Mo., agrees.
Last year, a survey by Bond's committee found
that Form 941 is the one most hated by small businesses. An advocate
of simplified tax paperwork, Bond predicts the new rules "will
have far-reaching effects" on easing small business' tax compliance
burden.
"The increased employment-tax threshold
is a clear signal that the IRS is listening," Bond said, "and
is helping us make meaningful changes to the tax system."
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