As President Obama readies his State of the Union address, news outlets are reporting that economic growth and taxation will be the focus of much of his remarks. According to these news reports, he will call for a "level playing field" in tax policy to ensure that the economic recovery reaches everyone, not just those in the upper tax brackets. He'll surely include several applause lines to appeal to his supporters in Congress and across the country. If the President and Congress are really serious about ensuring a fair tax code, they'll take action on the tax and other policy changes that level the playing field for the foundation of the American economy: the self-employed.
The nation's 22 million self-employed are starting and building businesses and contributing to the economic turnaround. But they're struggling not just with the economic challenges we all face, but also with a disproportionate tax burden and excessive paperwork requirements. The changes required to address these challenges aren't necessarily difficult - but they are vital to the continued success of the self-employed sector of the economy.
The Self-Employed Agenda for 2012 includes the following items:
Item: Self-Employed Health Insurance Deduction
The premiums paid for health insurance by the small-business owner will still be deductible on page one of form 1040 in 2011, but unlike 2010, those same premiums will not be included on Schedule SE, Self Employment Tax. That means net earnings from self-employment will be higher and the related Self Employment Tax will be higher. This is in effect a 15.3% tax hike on the small-business owner.
- Action: The self-employed need this deduction extended or made permanent to avoid the dramatic increase in tax burden that will otherwise take effect.
Item: Payroll Tax Relief Extension
The payroll tax cut for 2011 expires at the end of February 2012.
- Action: Small and micro-businesses, who pay both the employer and employee version of the payroll tax, need relief to be extended for the full year to ensure they can continue to grow and contribute to overall economic improvement.
Item: Standard Home Office Deduction
Entrepreneurs managing businesses out of their home face added burdens at tax time. The current home office deduction has the words "See Instructions" over 10 times on a one-page form. Bipartisan legislation has been introduced in Congress to allow business owners the option of a $1,500 standard deduction, but would not preclude taxpayers currently qualifying for the home office deduction from continuing to itemize their expenses should they choose.
- Action: More than half of the self-employed work from an office at home, so Congress should pass and the President should sign legislation simplifying the deduction.
Item: Tax Deduction for Startups
Passed as part of the Small Business Jobs Act of 2010, this provision allowed individuals to take a $10,000 deduction for start-ups in 2011. In 2012, the deduction will decrease to $5,000.
- Action: Maintaining the current level for this deduction is vital to encouraging individuals to continue to start new companies and contribute to the growth of our economy.
Item: Alternative Minimum Tax (AMT) Exemption
For tax year 2011, the AMT exemption for a married couple filing a joint return is $74,450 and $48,450 for single filers, representing a $2,000 and $1,000 increase, respectively. For tax year 2012, the AMT exemptions are currently scheduled to decrease to year 2000 levels to $45,000 for a married couple and only $33,750 for a single taxpayer.
- Action: Small and micro-businesses need this exemption to remain at 2011 levels to ensure the self-employed are not unfairly singled out for higher taxes by this reduction in the exemption.
We all know 2012 is a pivotal year for the economy - and for the politicians who help shape policies designed to boost growth. If our elected leaders are concerned about keeping their jobs into 2013, they should focus on the tax policies the self-employed need to keep growing their businesses in 2012.