When you interview small business owners, regardless of their political affiliation, they invariably talk about taxes and regulations, and usually the conversation is about how burdensome they are an damaging to growth prospects.

Now, that Republican presidential nominee Donald Trump and Democratic nominee Hillary Clinton have flushed out their economic proposals, we can bet a better sense of how they would treat small business, provided their proposals ever become law.

Let me stipulate at the outset, I’m no fan of Trump and I don’t trust him with the nuclear codes. However, if you’re a small business owner, and taxes and regulations are your main concern, Trump’s proposals are music to your ears.

Trump wants to lower the corporate tax rate to 15 percent from the current 35 percent. Under his plan, unincorporated businesses would benefit from the same lower rate as corporations, instead of reporting business income under the so-called “pass-through” rate on their individual returns as they do today. That would amount to a big break for most small business owners, entrepreneurs and perhaps solopreneurs, as well.

Clinton said in her economic speech last week she wants to provide tax relief and tax simplification for small businesses, and pitched tax credits for businesses that hire workers from apprenticeships or share profits with their workers. She does not support lowering the present corporate tax rate and would mandate a minimum 30 percent personal rate on individuals making more than $1 million annually. (Those making more than $5 million annually would pay a 4 percent surcharge.)

However, Clinton’s proposal drew the ire of the National Federation of Independent Business, a small business advocacy group. NFIB says it wants to know why Clinton “rejects out of hand a lower tax rate for pass-through businesses. Cutting their taxes means letting them reinvest in growth and jobs.”

Federal regulations can also be a real drag on business creation and growth. In 2015, 3,378 new rules were finalized and another 2,334 were proposed, totaling more than 81,400 pages, according to the Competitive Enterprise Institute, a libertarian think tank. Overegulation drains small-business capital, reduces profits and impedes revenue growth.

Trump is calling for a temporary moratorium on all new federal regulations to give businesses a break from the onslaught of new rules. He also wants every federal agency to scrutinize and eliminate unnecessary and job-killing regulations.

Clinton said she wants to cut red tape for small businesses, and has called specifically for providing relief to community banks, who are frequent lenders to small businesses, that are being squeezed by regulations that don’t make sense for their size and mission, such as the endless examinations and paperwork designed for banks that measure their assets in billions.

One thing both candidates agree on is eliminating the so-called “carried-interest” tax loophole that allows venture capitalists to treat their earnings as capital gains instead of ordinary income. Capital gains currently carry a tax rate of 23.8 percent while the top rate for ordinary income is 39.6 percent.

 

 

 

 

Small business is something just about all politicians claim to support–like our troops or the middle class. But like military vets frustrated with healthcare backlogs at the VA and working parents scuffling to pay for child care, anxiety among small business owners is up.

Earlier this month, a survey of nearly 1,300 small business owners–those with between five to 499 employees–was released by Bizjournals, a network of business newspapers. The survey found that 46%  of respondents identified as Republican, 19% as Democrat and 35% as independent or undecided. (Republicans tended to skew older and male, had higher net worths and had been in business longer. Democrats were younger, with the highest share of women- and minority-owned businesses, 21% of whom had been in business under 10 years. Undecideds skewed younger and male with 19% in business under 10 years.)

Republicans and undecideds rated the cost of health insurance and other benefits as their top concerns, while Democrats said attracting new customers was their top concern.Whichever way small business owners vote, it’s going to be a day of reckoning. Small businesses have grown tremendously in recent years and now account for two-thirds of all new jobs created in America.

According to recent articles in Fortune and Inc., here are five key issues small businesses are concerned about and what Democratic and Republican presidential nominees Hillary Clinton and Donald Trump have said on the issues.

• Healthcare.  The passage of Obamacare in 2010 was one of the biggest expansions of the social safety net in decades. Concerns among small business owners have mounted since the beginning of 2016, where businesses with 50 or more employees are required to offer coverage of pay tax penalties. Clinton wants to improve Obamacare by working to create a public option, by making premiums more affordable and lessening out-of-pocket expenses for consumers. That might include tax credits of up to $5,000 to offset excessive expenses and premium costs above 5% of income. Trump has said he would repeal Obamacare and essentially let states deal with healthcare for their residents. That would include changing regulations and to let states buy and sell insurance across state lines.
• Taxes and Incentives. No issue hits home more than taxes. While businesses are taxed at 15% for the first $50,000 of income, that rate could jump as high as 39.5% as income increases. The issue is complicated for entrepreneurs. Many are sole proprietors and therefore business and personal income are one and the same. Also many run S-Corps, which means profits and losses pass through to the owners’ own income. Clinton wants to offer tax relief, lower fees for small business loans and expand access working capital to entrepreneurs so they can hire and grow. Under Trump’s plan, top earners would pay a maximum personal-income tax rate of 25 percent and corporate taxes would be reduced to 15%. S-Corps and other pass-through entities like LLCs would also have a top tax rate of 15%.
• Trade. The U.S. is in the final round of negotiations for the Trans-Pacific Partnership (TPP), which potentially creates an 11-nation block involving 40% of the world’s economies in Latin America and Asia. TPP would reduce tariffs and create minimal standards for working conditions in many developing countries. Both Clinton and Trump say they are opposed to TPP.
• Business Regulations. This is another issue that riles small business owners, in part, because many can’t afford to retain a cadre of tax accountants and lawyers to wade through thousands of pages of regulations.Clinton wants to start a nationwide effort to cut red tape for small businesses at every level of government. Trump supports the Regulations From the Executive in Need of Scrutiny (REINS) Act, requiring an up-or-down vote by Congress on regulations with significant economic impact. The legislation passed the House in July 2015 but has stalled in the Senate.
• Minimum Wage. Raising the minimum wage is a big issue with small business owners.Earlier this week, Trump called for a federal minimum wage of $10 an hour, departing from past positions and his own party. Clinton has said she supports a $12-an-hour federal minimum wage, but states and cities should be allowed to set higher floors if they have local support, as some have done. The Democratic Party officially backs $15 an hour imposed over time.      

One of the most important factors in starting a small business–but often overlooked–is location. Instead, what is usually associated with location are real estate projects by major developers.

Earlier this week, Thumbtack, a service that links people with business and licensed professionals, ranked 35 states and 78 cities–including New Jersey and Pennsylvania, and Philadelphia–for overall smallbiz friendliness.

Thumbtack asked 12,000 small-business owners about government policies in their areas, rating locations on everything from overall business friendliness to more specific metrics such as the friendliness of an area’s labor regulations.

A key finding of the survey was that states and cities that make regulatory practices easier, such as licensing, taxation, ease of hiring, zoning and workforce development. Small businesses surveyed said regulations are often one of the biggest obstacles to overcome when starting a business.

Texas, Utah, Tennessee, Georgia, Colorado, Kansas, Virginia, Arkansas, Oregon and South Carolina rounded out the top 10, with overall grades ranging from A+ to A-. It’s worth noting that six of the 10 are in the South or Southwest, where right-to-work laws and low taxes have been the norm.

Pennsylvania scored an overall  C- and New Jersey a D+.  Believe it or not, Philadelphia fared somewhat better, with an overall grade of C+, with its best grade, a B+ for ease of hiring, and its worst grade a C+ for zoning.

Virtually every small business owner I interviewed during the course of writing a smallbiz column for the Philadelphia Daily News for almost four years complained about regulatory burdens and taxes.

I’m not sure how much credence we should lend this survey.  What was missing from survey was the quality-of-life factor.  I mean, don’t smallbiz owners want good schools,  infrastructure and access to quality, affordable health care?  Are these not factors in deciding where to start a business?

And would you really want to start a business in Kansas right now? Seriously?  This is a state that’s experienced negative economic growth for three of the last four quarters.

 

 

Some small-business advocacy groups, including the National Small Business Association (NSBA),  are not too keen on the idea of a new rule issued on May 18 by the U.S. Department of Labor (DOL) that will automatically extend overtime pay to more than four million workers within the first year it’s implemented.

The new rule raises the minimum salary threshold required to qualify for the Fair Labor Standards Act’s (FLSA)”white-collar” exemption to $47,476 per year.Under the existing rule, which has been in effect since 2004, employees must be paid a minimum annual salary of $23,600 to qualify for the “EAP”–executive, administrative, professional–exemptions from FLSA’s overtime requirements.

Beginning January 1, 2020, the salary level will update automatically every three years to the 40th percentile of full-time salaried workers in the lowest-wage U.S. Census region, said a post on NSBA’s blog yesterday. The DOL estimates that the figure will be $51,168 in 2020.

NSBA, which bills itself as “nonpartisan” and the “nation’s first small-business advocacy organization,” expects the new overtime rule to face legal challenges. One likely legal challenge is whether or not DOL has the “legal authority to imbed an automatic threshold increase based on a cost-of-living measure,” said NSBA, adding that DOL has never included a cost-of-living adjustment in the overtime regulations and some argue Congress did not authorize the department to do so.

Meanwhile, is the issue of the practical effect the new rule, if actually implemented, will have on small businesses. NSBA says that because the final rule makes fairly drastic changes to the FLSA, employers will have to consider numerous legal and practical strategies in implementing the new regulation.

First, employers will have to conduct a self-audit to determine who will be affected by the final rule. Employers will have to consider whether to continue to treat affected employees as exempt and raise their salary to the new mandatory minimum, or to allow the employee to become eligible for overtime pay.The final rule may also necessitate review and revisions to employer overtime policies, NSBA said.

In a letter to Labor Secretary Thomas Perez on September 3, 2015, NSBA President & CEO Todd McCracken said the-then proposed rule would be an administative nightmare for his 65,000 members. He said the cost of compliance for small businesses would be much greater than estimated by DOL. “Many small businesses have no, or very few, non-exempt employees, with most workers being salaried professionals or administrative employees,” he wrote. “They do not have timekeeping and payroll systems in place that can accommodate the addition of many more non-exempt employees. Thus, the burden of these changes will fall much more heavily on small businesses than on their larger competitors.

McCracken added that small businesses are often not equipped to monitor the activities of their employees in order to regulate their time. He said companies with fewer than 20 employees rarely have a dedicated HR department, “so the creation of new hourly reporting and tracking requirements are likely to be a much greater burden on these companies that do not currently face them.The result will be confusion and and excess cost for individual business owners.”

 

 

 

May 16 figures to be a huge day for startup founders.

Thanks to the Jumpstart Our Business Startups (JOBS) Act, which President Obama signed into law on April 5, 2012, more people will be able to invest in entrepreneurs through crowdfunding than heretofore. The goal of the legislation is to make it easier and faster for small businesses to get access to capital. (It took the SEC until December 2015 to promulgate and revise new rules.)

Up until now, if an entrepreneur wanted startup capital, he/she was constrained by either the size of their Rolodex or absence of already-existing relationships with angel investors or venture capitalists.

Now, entrepreneurs will be able to raise money by selling pieces of their companies to anyone with cash or interest. Prior to the rule change, entrepreneurs could only raise funds by equity crowdfunding from “accredited” investors, or individuals who met certain net-worth thresholds, i.e., at least $1 million.

This widening of the pool of individuals who can invest in startups essentially turns on a new spigot of capital for startups.

Those most likely to benefit from equity crowdfunding will be “mostly small businesses and startups that don’t have access to other capital and where a few hundred thousand dollars will have a meaningful impact,” Brandon Jenkins, COO of the real estate equity crowdfunding platform Fundrise told Entrepreneur.

The bottom line, then, is expanding access to crowdfunding will expand the amount of money being invested in startups.Experts say equity crowdfunding from unaccredited investors could potentially bring a couple billion dollars of additional capital into startups each year in the U.S., once the industry begins to mature and adapt to the new regulations.

This is especially good news for those Philly startups that aren’t necessarily getting the love from mainstream startup investors and who will now see opportunity in equity crowdfunding that they otherwise struggled to find. You may have a great idea for an app but if you don’t live in Austin, Boston, New York or Silicon Valley, it’s a lot harder to break into the VC community.

Maybe the Greater Philadelphia Chamber of Commerce or StartupPHL should put this guy on retainer.

I’m talking about Joshua Davidson, founder & CEO of Chop Dawg, which he touts as one of the “fastest-growing app development companies in the United States.”

And here’s the catch:  Chop Dawg isn’t based in San Francisco, Silicon Valley or any of a number of other high-tech boomtowns. In fact, it’s thriving in Philadelphia, of all places.

In a post earlier this week on startupgrind, Davidson, 23,  said he’s “become frustrated by the lack of love for the Philadelphia tech scene” and “clear distrespect” for the City of Brotherly Love. Then, he proceeded to make the case for why startup founders should relocate to Philly. Now.

Among the reasons Davidson cited are the plethora of universities and young  talent in the city; great networking, co-working and funding opportunities; proximity to the Jersey shore, mountains and other East Coast metropolises; ability to grow your business in an unsaturated market; and the city’s affordability.

In his closing argument, Davidson says Philadelphia is “quickly popping onto the radar” and like-minded individuals, i.e,., startup founders like Davidson, “will continue to put it over the top.”

I like Davidson’s fire in the belly for Philly. There’s no doubt the tech scene here is much more robust than it was even a few years ago. But I take issue with the theory that Philly is “quickly popping on to the radar.”

As much as it wish it were, I don’t think it is. Part of the problem is a lot of the mainstream tech media–periodicals and websites like Fast Company, Entrepreneur, Techcrunch, Wired and others–don’t write squat about the tech scene here.

And very few of the startups here are going to make major tech exits if we don’t get more–a lot more–early-stage venture capital flowing here.  As they say, money talks, and I’m afraid to many VCs based in Philadelphia listen too much to their own echo chamber.

While Philadelphia is the 5th largest city in the U.S., a recent study by creative economy guru Richard Florida identified the 10 leading metros with the largest clusters of VC investment and startup activity, found that Philly is still a laggard. Florida found that most of the investment occurred in five leading industries: software, IT services, biotechnology, medical devices and equipment and media and entertainment.

Philadelphia ranked No. 7 for biotech investment, with $206 million, or 3.6 percent of total investment. That was the only industry sector where Philly even scratched the top 10.

Another telltale sign for Philadelphia is the dearth of patents relative to the population of other tech clusters. A 2013 Brookings study found that the tech sector share of employment in the Philadelphia region was 5.7 percent, ranking it 40th out of 358 metro areas, meaning a lot of smaller cities have a higher percentage of tech workers than Philadelphia. (During the same five-year period analyzed, from 2007-11, Philadelphia ranked 12th in the number of patents.)

Why is this important?  Patents prevent an inventor’s valuable idea from being commercially implemented by a business rival without penalty. Patents, as legal records of novel and useful ideas, help drive regional innovation and economic growth.

So, yeah, Josh, while it’s true the startup scene is much livelier than it was even a few years ago, and I agree with much of what you say, I don’t think we’re “quickly popping on to the radar” yet.

 

 

 

Apparently, small business isn’t feeling the love from Uncle Sam. In fact, half of all respondents to an online survey of small-business owners said the government does not do enough to support small businesses.

That’s the conlcusion from a online survey of more than 1,100 small-business owners and executives of companies with five to 499 employees in December 2015  by Wasp Barcode Technologies in its 2016 State of Small Business Report. About 80 percent of all U.S. small businesses have 10 or fewer employees. (Wasp is a barcode system provider that enables businesses to track everything from fixed assets to inventory to people.)

Among the other key findings:

Top challenges facing small business.

Half of all respondents said hiring new employees, 45 percent said increasing profit and employee healthcare were the next biggest challenges, closely followed by 43 percent who said growing revenue was the biggest challenge.

Too Much Paperwork robs time from building the business.

According to regulations.gov, on average, federal agencies and departments issue nearly 8,000 regulations annually. Consider the impact of complying with just a few regulations of the Affordable Care Act. Businesses with 50 or more employees are now subject to new IRS reporting requirements and must complete two additional forms related to healthcare coverage.

Each form is supposed to take just 15 minutes to fill out, but that doesn’t account for the hours of accounting, eligibility determination and data-collection time that must be put in before the business owner can even start work on the reports.

At 15 minutes per form, that’s an extra 30 minutes per year spent on paperwork. Now multiply that by 161,000 small businesses with 50 or more employees, and that’s 3,354 days spent on paperwork for just one government requirement.

Government support, or the lack of it, directly impacts small business.

Additional time and costs associated in complying with rules and regulations means small businesses have less time to focus on core business needs, such as capital expenditures and raises for existing employees.

There’s also a ripple effect. The construction firm can’t hire the contractor. The contractor can’t buy the new truck he needs for his business. The car salesman can’t get the commission he needs to hire a plumber.

Interestingly, the smaller the business, the less they want government involved. Larger small businesses, on the other hand–those with more than 100 employees–feel better about government, and 37 percent of them said government does enough to support small businesses.

The Obama administration says it has made support of small business a top priority. The administration cites 18 tax cuts it has passed for small business, that it expanded and accelerated payment on government contracts and also launched a one-stop shop to make it easier for small businesses to access services and information they need to help them grow, hire, export and compete globally.

The administration also repealed the Bush administration-era rule requiring that the IRS withhold 3 percent of a contractor’s income.

Unless you’re a small business that’s part of the ecosystem of oil production and distribution, or is in a part of the country where oil is produced, chances are the impact of lower oil prices can be like a tax cut in which billions of dollars are left in your pocket. Here is the mostly good news.

You’ll continue to pay less for gasoline.

$2.08/Average price of a gallon of regular gasoline (4/13/16)

$2.38/Average price of a gallon of regular gasoline (4/13/15)

30 cents/Savings per gallon year-over-year

$6.00/Savings per tank full (20 gallons, year-over-year)

Source:  American Automobile Association

You’ll pay more for car insurance.

Lower gas prices typically mean more drivers on the road, and more drivers on the road increases the likelihood of accidents. And more accidents generally mean higher insurance premiums, says James Lynch, chief actuary at the American Insurance Institute.

You may be able to save some on airfares.

Lower fuel costs for airlines should, in theory, mean lower airfares.  Still, many airlines are also trying to improve their bottom lines and adding the new charges for bags and such and not necessarily passing on fuel savings to consumers. However, Delta, United, American and Southwest are offering historically low fares on some domestic routes, says George Hobica, founder of AirfareWatchdog.com.

The bottom line, then, is that lower-priced oil is generally a net positive for the economy. “As consumers begin to realize that this drop in gas prices isn’t just a one-off, more confident consumers will begin to open their pocketbooks,” Michael Hanson, an economist at Bank of America Merrill Lynch, recently told Kiplinger Finance Magazine.

 

 

 

 

Tax day is just around the corner (April 15), and while this event often gives taxpayers agita, there are things you can do to alleviate the stress. Generally speaking, few folks have their tax returns audited. As a percentage of all returns, less than 1 percent get questioned. According to Kiplinger.com, there’s no sure way to avoid an IRS audit, but they’ve suggested a number of red flags that could increase the likelihood the taxman will give your return more scrutiny. Here are some key ones:

• Running a small business.  If you run a cash-intensive business (say a bar or hair salon), or are self-employed, the IRS will be more likely to scrutinize you than other types of businesses. According to Kiplinger, the IRS thinks it can get more bang for its audit buck by examining S corporations, partnerships and LLCs.
• Making a lot of $$$.  There’s one in 10 odds of being audited if income is $1 million or more.
• Failing to report all taxable income. The IRS gets copies of all 1099s and W2s you receive, so make sure you report all your required income on your return. A discrepancy sends up a red flag and causes IRS computers to spit out a bill.
• Taking higher-than-average deductions.  If deductions on your return are disproportionately large compared with your income, the IRS may pull your return for review. However, if you have proper documentation, don’t be afraid to claim a deduction.
• Reporting large charitable contributions. If your charitable deductions are disproportionately large compared with your income, it rasises a red flag.
• Big deductions for business meals, travel and entertainment. These kinds of deductions are always ripe for an audit, whether taken on Schedule C by a business owner or Schedule A by employees. Agents are on the lookout for personal meals or claims that don’t satisfy strict substantiation rules.

As a general rule of thumb, I am always mindful of some sage advice I once got from an accountant who told his clients:  “It’s OK to be a pig, just don’t be a hog,” he said, referring to taking liberties with your tax return.

There’s a lot to like about Mayor Jim Kenney’s proposed soda tax, which could add a projected $48 million to the city’s budget in fiscal year 2017, if adopted by City Council. Most of the money is expected to fund universal pre-K education, parks, libraries and recreation centers.

Kenney’s proposal calls for a 3-cents-per-ounce tax on all surgary drinks but would not apply to diet drinks. The tax is all but certain to be passed along to consumers and the beverage industry and its allies have suggested it will make the city less competitive. It’s also worth noting that Kenney’s predecessor in the mayor’s office, Michael Nutter, twice failed in a bid to enact a similar tax.

Only one other city in the U.S–Berkeley, Ca.–currently has imposed a similar tax, although it’s just one cent per ounce.

To his credit, Kenney has earmarked where the soda tax revenue should go and has not tried to oversell its public-health benefits although studies have shown that consumption of sugary drinks contributes to obesity, diabetes and related ills.

That being said, is it possible we could design an even better version of this tax? Consider what’s happening in the United Kingdom. Beginning in 2018, the UK will charge the equivalent of  .75 cents per ounce for drinks that contain more than 3 teaspoons of sugar in an 8-ounce serving and a full cent per ounce for drinks with more than five teaspoons per serving.

The UK’s innovation is in the tiering, according to an analysis by the Tax Policy Center in Washington. Rather than hit all sugary drinks with the same tax–as Philadelphia is proposing–the UK has three levels. Drinks with little sugar aren’t taxed at all, drinks with moderate sugar face one tax rate and drinks with lots of sugar face a higher one.

The Tax Policy Center analysis concludes that the three-tier structure will encourage people and businesses to favor lower-sugar drinks over sweeter ones. “That’s important because sugar content differs significantly.  If you believe sugar is harmful, you should want people not only to cut back on sugary drinks, but to switch to less sugary options. And you’d want businesses to devote product development, marketing and pricing efforts to lower-sugar options.”

The analysis said linking the tax to sugar content encourages businesses to do that. Indeed, the UK is delaying the new tax law until 2018 to give beverage companies time to avoid or lower the tax by reformulating their products.

But the Tax Policy Center said the tax is far from perfect.  They asked: “Why do the tax rates differ by only a third when the difference in sugar content is often larger? Why not have even more tiers–or even directly tax sugar content?”

Those are good questions but they don’t diminish diminish the fact that the UK’s approach makes much more sense than taxing sugary drinks uniformly, as Berkeley does and Philadelphia is proposing to do.Those taxes do nothing to encourage consumers and businesses to favor lower-sugar drinks.

If we’re going to impose a sugary-drink  tax, let’s at least target sugar content rather than drink volume.