IRS Decision Good News for Small Businesses

You don’t hear this often: Kudos to the IRS. They’ve stopped plans that would have been a nightmare for small business recordkeeping. The Phoenix Business Journal reports:

The Internal Revenue Service has dropped plans to require businesses to reconcile their receipts from credit card transactions with reports filed with the IRS by third-party payment entities.

Legislation enacted in 2008 requires these third parties to report how much every merchant is paid each year through credit cards, debit cards or services like PayPal. For the 2012 tax year, the IRS planned to require businesses to reconcile their records with these third-party reports when they file their tax returns.

The IRS decided to drop this requirement after complaints from small-business owners, who said it would pose a significant burden on them. They noted that the amount recorded on credit or debit card purchases often does not equal the revenue a business receives from the transaction. For example, customers often get cash back on debit card purchases or receive cash when they return merchandise purchased with credit cards.

Legislation to overturn the requirement recently was introduced in the House. On Feb. 9, however, the IRS told small-business groups it would not impose the reconciliation requirement for 2012 tax returns, “nor do we intend to require reconciliation going forward.”

“We appreciate your work with us in this and other areas as we continually seek to improve our processes and to minimize compliance burden on taxpayers,” wrote Steven Miller, the IRS’ deputy commissioner for services and enforcement.

Business groups praised the agency’s decision.

“The IRS did the right thing, and they should be applauded for listening to the concerns of the small-business community,” said Giovanni Coratolo, vice president of small-business policy at the U.S. Chamber of Commerce.

“We were very pleased that the IRS took time to listen and work with us to resolve this matter in a satisfactory manner,” said Bill Hughes, senior vice president for government affairs at the Retail Industry Leaders Association. “This will relieve retailers of an unnecessary burden while still providing the IRS with the tools it needs to ensure tax compliance.”

Dan Danner, CEO of the National Federation of Independent Business, called the IRS reversal on the reconciliation requirement “a small, but important victory for small business."

Americans: Why Are We Working to Build More Debt?

It’s a four-letter word, and one I find almost as offensive as that other kind of four-letter word: debt. And while it should strike fear into the heart of every person, we just keep racking it up.

I heard one example on my way to work that was disguised as an easy way to pay for a LASIK vision procedure. Here’s my recollection of a portion of the commercial script that I found troubling:

Wife: “Go get LASIK.”
Husband: “But we can’t afford it.”
Wife: “Of course we can afford it, they have financing available.”

Uh-oh. Being able to afford something and being able to finance something is not the same thing. As a matter of fact, if you have to finance a product (that great pair of red pumps from the shoe store, a medical procedure such as LASIK eye surgery, etc.) that actually means you can’t afford it. Financing equals debt.

Here’s another alarming trend I read about recently in TIME magazine: according to a new study from CardHub.com, America is working to increase its collective credit card debt by $54 billion in 2011. The article goes on: in 2009, Americans actually reduced their credit card debt and added $9 billion in new credit card debt in 2010.

That means people were being smarter about their spending during the economic recession – or less able to be approved for credit cards. But, either way it means more people were actually living within their means.

I’m not sure where this turn-around from two years ago has come from. Possibly it’s similar to a teenager tasting his or her first bit of freedom after being grounded for a month – Americans are trying to make up for that time locked away without the ability to do whatever they wanted, whenever they wanted.

The TIME article made conclusions that the increase in credit card debt is similar to the subprime mortgage crisis of a few years ago – what many say propelled us into the recession. I’m confident that no one wants a repeat just two or three years later with credit card debt to blame this time.

Getting out of debt is not easy and it’s not quick – but the first step is to stop accruing debt: No more credit cards, no more financing.

So, someday when I get LASIK, I’ll have worked to save the money and will be able to truly afford it – no financing for me, thank you very much. What about you? Are you relying on credit cards and financing or are you working to get out of that vicious debt cycle?