My question to legislators is, What do you think? Will Congress take advantage of this once-in-a-generation chance to pass a comprehensive tax reform that acknowledges the difficulties women who own businesses have to face and how we can assist them in navigating how to navigate the code of taxation?
An increase in economic contributions
Since Congress last revised the code of taxation in 1986. The percentage of female business owners has increased by a whopping 4.1 million to over 11 million by in 2016, representing over a quarter of U.S. businesses. They employ nine million people and make up 1.6 trillion dollars to our U.S. economy, and almost every one of them is a small-sized company.
In recent years, their numbers have grown five times greater than the average national rate for all businesses, growing by 45 percent between 2007 and 2016, a period which also comprised that of the Great Recession.
More amazing than their growth rate is the reality that women have done all this without tax benefits specifically targeted at small-sized businesses.
The Small Business Administration, currently headed by Linda McMahon, issued a report earlier in the year that found female-owned businesses are in both employment and revenue. A.P. Photo/Alex Brandon
Tax myopia
In the past, Congress has done a variety of actions to encourage female business ownership, including adopting legislation to combat unfair lending practices and facilitating federal contracts and counseling opportunities for women who own businesses.
For instance, The Equal Credit Opportunity Act of 1974 banned discrimination when it comes to granting credit based on sex or marital status. In 1988, the Women’s Business Ownership Act of 1988 encouraged women to take on entrepreneurs with small businesses and created the National Women’s Business Council.
Additionally, the Small Business Reauthorization Act of 2000 created an initiative to assist women-owned companies in getting federal contracts.
However, legislators haven’t been as clear in regards to the grave difficulties women face when it comes to accessing capital to expand their business, despite the fact that they’ve repeatedly addressed this issue that is common among entrepreneurs with small businesses in their tax codes.
This year, the Small Business Administration’s Office of Advocacy issued a report that showed that female-owned businesses consistently fall from the rest in revenues and work. Another study conducted by Congress has revealed that only $1 of every $23 of conventional small business loans is given to women-owned companies.
Psyche Terry, the owner of Urban Intimates, possesses an image next to some of her items available at the Indulge Your Senses boutique in Little Elm,
In my research report “Billion Dollar Blind Spot: How the U.S. Tax Code’s Small Business Expenditures Impact Women Business Owners,” I collaborated in conjunction with Women Impacting Public Policy – an association of trade professionals that is dedicated to promoting women entrepreneurs to interview 515 women entrepreneurs and study how they make use of four major tax deductions that are designed to encourage small-scale business expansion and investment:
Section 1202 provides an exemption from taxation on capital gains for any gains derived from the sale of certain qualifying small business corporation shares. The law likely will cost taxpayers $6.2 billion in 5 years, specifically excluding service businesses from qualifying (most women-owned enterprises operate in the service sector).
Section 1244 allows investors of small business corporations to consider all losses as ordinary. The estimated cost is $500 million in the next ten years.
Section 179 is an enhanced deduction in taxation for equipment that is applicable to tangible personal property investments with a value of over $248 billion in the five years to come.
Section 195 allows for the possibility of a deduction of $5,000 for start-up costs. It is estimated to cost at most $400 million over five years.
The results were informative.
The three first rules are so restrictive in terms of design that most women-owned businesses aren’t able to make use of them, which makes accessing capital gains through tax breaks virtually impossible for business owners who own these businesses. The rules specifically exclude service-based businesses or completely bypass any company that isn’t classified as a “C corporation,” or that isn’t investing in capital-intensive equipment and cannot be eligible for the tax deduction.
This is because 61 percent of female-owned businesses are located in service-related industries, and the majority of small-scale businesses are not organized in any way different than a C-Corp. This makes it much more difficult to get investors.
Our data from the survey confirmed our findings. The survey found that very few respondents claimed they’ve ever made use of sections 1202 (less than 1%) and 1244 (less than 6 percent), and we also discovered that over half of them aren’t fully benefiting from section 179.
This means that female business owners may not be getting the benefits of over $255 billion in aid that the U.S. will spend over the next few years to fund the help of these programs. In the same way, our research data proved that when female business owners could benefit from the tax deduction in the past, they could. Nearly 60% of people we interviewed claimed the start-up deduction as an example.
Additionally, we discovered a lack of research conducted by the government on how tax codes affect female business owners. As of now, both lawmakers on the House and Senate tax-writing committees have not shown a thorough hearing about the difficulties faced by female business owners and whether the tax code’s small-business incentives for tax purposes are functioning in the way it was intended for the businesses. There is a lack of information from the relevant government agencies regarding the crucial issues. For instance, the Internal Revenue Service, the Treasury Department, and the SBA do not even keep track of tax information on women-owned businesses, which comprise nearly 40% of all U.S. businesses.
