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New Small Business Definition May Mean Higher Taxes

Written by Ken Gaebler
Published: 8/19/2011

Are business tax increases looming on the horizon? Closely held companies that do not qualify for small business status could be required to pay corporate taxes.

Small business news from Bloomberg suggests that taxes may be on the rise thanks to a new definition of what a small business is by the U.S. Treasury Department.

Business Tax Increase

The proposed definition, included in the Treasury report from earlier this month, places the upper limit on small businesses at $10 million in annual gross income or deductions, the news source reports. There is no current size limit to define a small business for purposes of tax policy discussions.

Bloomberg said these parameters could affect larger, closely held businesses, including those organized as limited liability companies, S corporations and partnerships. Profits at these companies flow directly to owners, who pay personal income tax first without being subject to corporate taxes.

"The administration has made it clear that it's interested in drawing an arbitrary line and taxing firms above it," Brian Reardon, a lobbyist for the S Corporation Association of America, told Bloomberg.

The August 2011 ACCI Small Business Survey shows that small business profit growth remained contractionary at 37.5 percent over the second quarter, the lowest level since September of 2009. Small businesses expect the pace of decline of profitability to slow over the next quarter.

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