Is Sequestration a Dirty Word?

Sequestration is such a pleasant name for the mess happening in Congress right now.  Sure the budget cuts are small in the grand scheme of our1260843_protect_your_money government, about 2% of our total budget, but we have to hear these adults battle out nuances like two year-olds fight over wooden blocks.  We do not technically “have to” listen to this fight, but the entertainment/dramatic value is so great that is hard to turn away.  Furthermore, as a small business owner, frustrated with the complexity of the tax code, I stare in disbelief as they fight over sequestration while I fight with myself and TurboTax.  Why did we let our tax system become so convoluted?

Small business owners who are sole-proprietors or LLC owners must pay Self-Employment Tax, since they are receiving income but not from payroll (where the government collects Social Security taxes).  While I was researching information about the Self-Employment Tax, I found this article about how Timothy Geithner failed to file Schedule SE.  He said he used TurboTax to prepare his returns and the software did not prompt him to pay Self-Employment Taxes, and as a result Geithner was questioned by Congress for not paying taxes.  Which brings me to this point: that’s crazy.  That guy was in charge of our government’s finances and he had no idea how to file his own taxes!

Bringing this story home to Vermont, I went to a small business tax seminar put on by a representative of the IRS, and all he was able to tell us is that we need file a Schedule C (or 1065/K-1 if it is a partnership) and a Schedule SE.  Granted, he is not a small business tax expert.  He disclosed that though he works for the IRS, he pays someone to do his taxes.  This is another example of someone who we think should know how to file their taxes, but in fact finds the process to be too complicated.  The good news, he told the group, is that the IRS has a 1-800 number.  Then he followed with, “Of course, this time of year there is a long wait,” and even more depressing is that the person you get on the phone will most likely NOT be a small business tax expert.  You will likely have to wait another hour to get that person.

Since few people know how to file their own taxes properly, we end up spending more money and time on something that brings us absolutely no joy.  Then why is our tax code still so complex?  For one, people like the complexity because that is how they save money on taxes.  Two, politicians make the decisions and the system is not set up for collaboration.

Some solutions that have been brought up in Congress include a flat tax and some variation on removing the income tax and adding a large value-added tax or tax on purchases of new goods.  What are you finding as a small business owner?  Are you paying too much for a tax accountant?  What do you think is a good solution to simplify the tax code?

About Matt Tucker

Matt loves teaching people about business because he believes everyone should have the opportunity to try working for themselves. He owns Small Systems Consulting where he builds websites, sets up accounting systems, creates business plans, and consults with small food businesses in Vermont. Aside from the business thing, Matt enjoys cooking and all things food, explores creative writing as a hobby, grows food, plays soccer, and is hooked on squash- the sport. Website: www.smallsystemsvt.com/ | Twitter: @SmallSystemsVT

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