NASE tax guru Keith Hall

This was about as close to angry as I’ve ever heard NASE tax expert Keith Hall get, but you really can’t blame him.

Keith and I had a Microbusiness Conversation about microbusiness and taxes and, specifically, about those nasty (and stupid) new 1099 reporting requirements that were slipped into the Patient Protection and Affordable Care Act.

This is an important Conversation, so I hope you take the time to listen — either live, today at 2 pm Eastern, or archived, below.

Since we had that conversation, it has been brought to my attention that there are efforts in both the House and the Senate to either mitigate the effects of that requirement or to repeal that section of the Act.

The effort to repeal it is contained in the Small Business Paperwork Mandate Elimination Act (H.R. 5141/S. 3578), introduced by Rep. Dan Lungren (R-CA) in the House and by Senator Mike Johanns (R-NE) in the Senate. The bill simply repeals the provision that expands 1099 reporting requirements to corporations, according to the summary in THOMAS, but does nothing about those sections of the bill involving 1099 reporting for product purchases.

The bill has been referred to the House Ways and Means Committee and the Senate Finance Committee, where it is unlikely to ever see the light of day. Given that the bill attempts to repeal a provision inserted by the head honchos of said committees, I wouldn’t hold my breath waiting for a hearing on this.

On the other hand, there have been several reports of a letter to IRS Commissioner Don Shulman, signed by a sizable list of Senate Democrats, asking the IRS to go easy on small businesses with these new reporting requirements. I haven’t been able to find the letter online but I’m willing to take the NSBA’s word for it.

Here’s the part everybody’s been quoting:

“The new requirements may place a hardship on small businesses by creating an extra paperwork burden,” the senators wrote. “Not only will a 1099 form be necessary for millions of new transactions, the stricter requirements force business owners to collect taxpayer identification information from vendors, contractors, and other companies.”

The senators went on to say “we insist that the IRS develop ways in which small businesses can reduce expected paperwork from this requirement — possibly through consolidating existing forms, for example — and that the IRS report its proposed solutions to the Senate Committee on Small Business and Entrepreneurship prior to implementation of the new law.”

(-ahem- Excuse me, the new requirements “may place a hardship on small businesses” … ?! I have a better idea, how about if we just get rid of it!)

The Senators involved, in alphabetical order, are said to be Evan Bayh (D-IN), Mark Begich (D-AK), Michael Bennet (D-CO), Sherrod Brown (D-OH), Al Franken (D- MN), Tim Johnson (D-SD), Amy Klobuchar (D-MN), Jeff Merkley (D-OR), Patty Murray (D-WA), Ben Nelson (D-NE.), Jeanne Shaheen (D-NH), and Debbie Stabenow (D-MI).

One other note: the IRS is currently soliciting public comments that the agency can use to work towards its stated goal to “implement these changes to section 6041 in a manner that minimizes burden and avoids duplicative reporting.”

If you have any serious suggestions to make from an administrative point of view, please make them here! You have until September 29. 2010 before the comment period closes.

If, on the other hand, all you want to do is write an angry screed about how terrible this new rule is, don’t waste your time. It’s easy to abuse the folks over at the IRS but they can only do what the laws require them to do.

If you want to get mad, then get mad at Congress and President Obama.

(This edition of Microbusiness Conversation was pre-recorded on July 23, 2010.)

Weekly microbusiness news podcast

Everybody else is complaining about those new reporting requirement and the burden they’re going to impose on small businesses. Why should Nina Olsen be any different?

Nina Olsen, in case you didn’t know, is the National Taxpayer Advocate over at the IRS. A few years ago, when she named the tax gap as the top taxpayer challenge for fiscal 2004 and simultaneously nailed Schedule C filers as an entire class of tax cheats, she seemed like Microbusiness Public Enemy #1.

This year, she is letting everybody know that those new 1099 reporting requirements are absurd. So, now, it’s more like We Love Nina, right?

Besides taxes, there’s more political gyrations around what Congress can and should be and will do for small businesses and whether, as usual, all of that will turn out to be useless for microbusinesses.

There’s new numbers out this week, as well, and another edition of Policy Matters.

Listen to the Microbusiness News Briefs Podcast: Download audio file (07202010.mp3)

(Click here to subscribe to the podcast RSS feed.)

For more information:

• FY2010 National Taxpayer Advocate Report To Congress (PDF)
• Senators Reid, Landrieu Join SBA Administrator Mills To Discuss Support for Small Business
• U.S. Census Bureau: Survey of Business Owners
• Microbusiness Conversations

I hadn’t met Janna Piper before I talked to her for this radio interview, so I was completely unprepared to discover that she had three entirely separate and seemingly unrelated business and that her housesitting enterprise was only one of them.

Janna is also an aspiring professional athlete. Her sport is Women’s Boxing.

And she is a musician and a recording engineer.

Janna is not the first nonemployer business owner I’ve heard of who operates more than one business. In fact, that is one of those things about the nonemployer numbers released by Census every year that makes people twitch. We all know that more than one person can partner to operate one nonemployer business. In addition, we know that one person can operate more than one nonemployer firm.

Census counts firms but a bit of judicious nose counting on the part of the guys over at the SBA Office of Advocacy has found that there aren’t as many of those multi’s as you might have thought, making the Census numbers still a pretty good proxy for the number of people running solo operations these days.

When you put Janna into the perspective of the larger universe of nonemployer businesses, that makes her and her firm even more interesting.

Check out the show:

Next week, July 26, 2010, Microbusiness Conversations gets very down-to-earth and practical with a show about everybody’s least favorite topic: taxes. Much as we hate dealing with them, there have been lots of changes afoot in tax law. Some of it has meant more tax breaks for us (especially employers), most of it means more paperwork because of the added reporting requirements that are coming our way.

So, join me as I have a conversation with Keith Hall, tax expert with the National Association for the Self-Employed (NASE). Keith will give us the rundown on what’s new, when it kicks in and what we need to be doing now to reduce our tax burden and our paperwork burden. That’s next Monday, July 26, at 2 pm Eastern.

Since it’s July, I thought I would work with the not-exactly-original-but-often-interesting theme of “independence.”

When it comes to running a microbusiness, independence can mean several different things.

Of course, it’s a pretty rare thing for a microbusiness to be a wholly owned subsidiary of anything at all, so that we are all independent in that sense.

It’s nice, too, because we can make business decisions without having to worry about other forces in the corporate hierarchy that might be breathing down our necks.

But sometimes being small makes being independent — truly independent– impossible.

For example, if you run a micro service business and you only have one or two clients, you really do have to treat each of them like the Goose That Laid The Golden Egg. If you end up having to be paranoid about ticking off one or the other of them because you can’t afford to lose the business … well, that’s not really independent, is it?

How about if you find that your business is always buffeted by the winds of the larger economy. Maybe your business decisions try to ignore that larger economy but, if it still impacts your business, can you truly call yourself independent?

Or maybe you really are independent. Or maybe you are but don’t want to be and are only waiting for the job market to revive.

That’s my question to you this month:

What do you say?

While you’re at it, feel free to drop by the comments here and leave your general thoughts about the whole idea of being an independent business and what that really means and why it’s important … or not.

June’s Poll Results

This is another case in which the results were interesting and would have been even more so if there’d been more responses.

Juen Poll: Has the economy caused you to reassess your business?

Of course! – 50%
No, I regularly revise my business plan (regardless of what the economy does) – 30%
No, it hasn’t been necessary – 20%

There were no votes for the fourth choice: “No, I never go back and revise anything.”

It isn’t surprising to learn that microbusiness owners regularly reassess their firms, even though we are pretty sure that microbusiness owners are allergic to excess paperwork. Micros are pretty flexible and, as has often been stated, they can turn on a dime.

Under those circumstances, they had better be willing to get with the planning program. Otherwise, they’d be spinning like tops and stopping on dimes and getting precisely nowhere, wouldn’t they?

Have a great weekend, everybody!

Weekly microbusiness news podcast

Sometimes, Washington still has the power to surprise me.

Take this debacle with the nomination of Dr. Winslow Sargeant. Personally, given that it is not required by statute for the Chief Counsel of the SBA Office of Advocacy to be a lawyer, Senator Olympia Snowe’s intransigence about it strikes me as being a bit unreasonable … even irrational.

-ahem-

Do you really have to be a lawyer in order to go to bat for small businesses that are regularly browbeaten by federal regulations? I wouldn’t have thought so, not when there are attorneys on staff at Advocacy and when the real experts on the subject are small business owners on those Advocacy panels I keep hearing about.

On the Senate floor, Senator Mary Landrieu mentioned that when the economy is in the sort of shambles it’s in right now, this is not the time to withhold any sort of resource for small businesses — including their very own advocate within the federal government.

She’s right. And, just between us, I sure hope they get this resolved soon!

So, in other news … anybody taking bets on whether the federal budget will get cobbled together, passed by both the House and the Senate, and all 12 bills signed into law before the close of the fiscal year on September 30th?

Nah, I didn’t think so.

Listen to the Microbusiness News Briefs Podcast: Download audio file (07122010.mp3)

(Click here to subscribe to the podcast RSS feed.)

For more information:

• Senate Committee on Small Business and Entrepreneurship
• Status of Fiscal 2011 Appropriations Bills (THOMAS)
• SBA Office of Advocacy

I struggled with a single-word description I could use for this particular segment.

On the one hand, the sorts of stuff I tend to want to discuss with Jane Chin tend to be fairly complex and not given to one-word soundbyte-style descriptors.

And, besides that, most of the things I managed to come up with — including the one I eventually used — just sound too airy-fairy and New Age for my comfort.

But in spite of the somewhat misleadingly nuanced word, “mindfulness” is a perfect description. Because what we talked about were the various ways that microbusiness owners innovate and pioneer and defy the advice of the gurus because so often we have to. That is the difference that makes the microbusiness.

It’s funny that we wound up talking for a little bit about how so many people believe that the fish all need to be swimming in the same direction and that makes them uncomfortable with their decision to be true to themselves and run a microbusiness.

What’s unfortunate about that is that, if you look at the numbers, almost all the fish are swimming in the same direction but it’s in the microbusiness direction. The fact is that the majority of U.S. firms are not operated by folks who want to ramp up and scale up and build an empire.

And yet, somehow, we often seem to be left with the impression that growth is what everybody is doing and we’re just weird for not wanting to do the same thing.

Kind of makes me wonder where all those false and misleading messages are coming from?

As conversations go, this was one of the best ones and always will be, I suspect. You might think it’s kind of brash for me to say that so early in the history of this radio show but … well, just listen.

Next week, July 19, 2010: On the next episode of Microbusiness Conversations, I bring you my very first Microbusiness of the Month: Janna Piper Housesitting, headquartered in Portland, OR. I hope you’ll join us for a lively, interesting and sometimes surprising conversation about the realities of running a microbusiness … or two or three.

[Oh, and I should be able to bring you this week's Microbusiness News Briefs podcast tomorrow!]

(Photo by trmarch, via Flickr)

I originally had other plans for today’s post but I got an email over the long weekend that changed my mind.

The email was from Trish, of SENSSE, who wrote in part:

Hi Dawn,

I appreciate your columns and podcasts and especially your dedication to collecting figures. I do have a question though and seemed to have missed where it’s spelled out.

Jobs- How many? That’s where the public, lending institutions and economic developers of every level ask. How many jobs are we talking about?

I got this: Microbusiness at 27M make up 92% of all firms. About 21M of those are ‘non-employer’. But what about jobs? What number and percentage of jobs do microbusinesses hold and which definition of microbuisness (solo, 5 and under, 10 and under etc.)

Well, I thought that was an interesting question.

The thing about microbusinesses and jobs is that it’s not a simple question of ‘how many jobs to they create? how many people do they hire?’

But before I get into that, let me do the easy stuff.

For starters, everything I write here will refer to microbusinesses with fewer than five employees. Obviously, when you look at job creation in this group, you are immediately excluding 85% of them because that’s the percentage of microbusinesses that don’t create traditional jobs, being nonemployers.

So, among the 3.7 million microbusiness employers (and this is still 61% of all U.S. employers), there are 6.1 million employees. That is a fairly small percentage of the overall workforce: only 5%. It’s even more stark when you compare that with the more or less half of the workforce employed by all small firms.

But … and this is where it gets interesting … if you try to look at job creation using the static data, you learn that between 2006 and 2007 (the time period covered in my last post about the overall firm size data), overall employment grew by a minuscule 0.6% while at the same time employment at microbusiness employers increased by 3%.

That sounds just a bit more impressive until you realize that you’re talking about the difference between an increase of 687,100 jobs (overall) versus 179,878 jobs (micros).

The dynamic data — that is, the data put out by the Labor Department that shows jobs created, jobs lost and the net job gain/lost for the period — gives you a much more accurate picture.

The first thing you learn from the dynamic data is that job growth and decline is pretty stable in the middle, among those firms that are larger than micro and smaller than large. The largest firm size class and the smallest have a lot more churn, from a labor market point of view. The change in employment in those two firm size classes from 2005 to 2006 (the most recent year in which we have numbers) is almost the same — up about a million jobs net.

This tells us that large firms are an important source of new jobs but, as Kauffman has been yelling about since last year, very small and new firms are an even more important and perhaps more reliable source of net new jobs.

And this stuff doesn’t even get into the issue of self-created jobs — that is, nonemployers.

You see, while we tend to treat nonemployer firms as businesses, everybody tends to forget that every time somebody creates a new nonemployer firms that have essentially created a job for themselves. Certainly, they go from being unemployed or being otherwise employed to being self-employed — a change in employment status that is captured in the unemployment rate (from the Household Survey) but not in the job creation numbers (from the Establishments Survey).

This is the sort of statistical conundrum that gives me headaches on a regular basis, where you can understand the logic of why the data collectors count things the way they do but you can also see that the way they count things does not match feet-on-the-ground real life out here in the real world.

If you look at things that way — counting each new nonemployer business as a new job — then possibly you will understand why I’m so interested in the rate at which nonemployers have been growing over the last five and ten years, and the way that nonemployer growth has really accelerated since the turn of the century.

And, of course, none of this stuff addresses the amount of work created by microbusinesses (and farmed out on a project basis to other micros and nonemployers) — which is another important labor market contribution made by firms of all sizes that is not counted at all by the relevant parties.

You see, I think that one of the ways the 21st century economy is evolving is that the source of job creation is shifting from the company to the individual. That’s too big a change for many people to wrap their minds around at this point, especially those of us who are old enough to have been educated to be employees, and certainly too much change for the short-sighted people we tend to elect to public office.

But, looking at the numbers, that seems to me to be the way we may be heading.

Trish also wrote:

I love reading your narrative and highlights and viewpoints but I do wish I could pull up a page just with the pie charts and figures in comparison. Maybe you know of such a page. If not I would love to see it on your site and would happily link and write about it.

I don’t know of such a spot (although there probably is one) but I’ll tell you what, Trish. I’ll work on that (sounds kind of nifty) and I’ll let you know when it’s posted.

And thanks for writing.

There has been research which indicates that, beyond a certain point, lifestyle improvements do not necessarily improve one’s quality of life.

There are been other research that found that people, in general, have no desire to be rich (which is why the lack of desire of most small business owners to build empires makes perfect sense).

In fact, all the research seems to indicate that we all can attest to the truth of that old Beetles tune: money can’t buy me love.

(Sorry, I don’t have that one on my hard drive.)

Or happiness. Or friends. Or even a Friday night beer party free of indigestion.

So, it’s not all that surprising to hear that maybe people are scaling back their lives in response to the gyrations of the economy.

Meanwhile, those gyrations continue to gyrate, don’t they?

We’re hearing that the recovery is slowing or wasn’t real or whatever. It’s looking to me as if this downturn — which is a more acceptable D-word than ‘depression’ — was so massive that it wasn’t going to be possible for the government to spend its way out of it in the first place, so there will be limits to what the Obama Administration will be able to do about a double-dip.

Richard Reich, Secretary of Labor during the Clinton Administration, wrote, “In a recession this deep, recovery doesn’t depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery … .”

If consumers aren’t going to spend their way out of the economic doldrums and if there’s not going to be as much need for business investment, since inventories won’t need to be replenished as fast as some might have hoped, maybe we need to get used to this.

What if the U.S. economy simply isn’t going to get back to being the kind of engine it used to be?

(Pause for musical interlude … ) Download audio file (IWantYouBack.mp3)

Maybe, instead of a big Dodge Ram engine it’ll start behaving like a little Toyota Prius engine — smaller and more efficient.

What if the U.S. government simply isn’t going to have the money to keep the corporate giants afloat and stop them from shedding all those jobs?

What if the U.S. economy has really contracted and, every time we try to defibrillate it or jump start it or otherwise force it to grow when it would not have done so on its own, it slaps us down by returning to that contracted size first chance it gets?

What if tepid economic growth is the new normal?

What if small really is the new big?

It’s kind of scary to think of all those millions upon millions of people without jobs also being without what little money they get on unemployment but it’s also kind of ridiculous and certainly unsustainable to have all those people still on unemployment two years later.

Given the situation, do you think it’d occur to somebody that maybe this isn’t working?

If consumers just aren’t going to buy that much anymore, I suspect we’re looking at a need for a retooling of the U.S. economy — complete with a new economic philosophy upon which to base our theories that purport to explain what said economy does.

Economics seems to me to always assume that, when it comes to material goods, people continually want more.

The fact that 91% of the businesses in the country are microbusinesses suggests to me that, when it comes to material goods, people are often content with ‘enough.’

I get the feeling that it’ll be much easier for the citizens of the U.S. to get used to a smaller national economy than it will be for our nation’s leaders to do so.

Which is a good reason why they need to get out more.

Here’s something else former Secretary Reich wrote: “This economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained.

The X marks a brand new track — a new economy. What will it look like? Nobody knows. All we know is the current economy can’t “recover” because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin.”

(For the record, Reich’s book about all this — in which I have absolutely no financial interest — is to be called Aftershock and is due out in September. Promises to be an interesting read.)

I have a feeling that if the politicians were to step outside the Beltway and plant their feet on solid ground, they may find that new economy has already begun. Imperfectly. Limping along uncertainly. It’s hard for the new economy to take a firm hold when it must currently operate within the infrastructure of the old.

But it’s coming. I’ve been telling you that for a long time, haven’t I?

Have a terrific and safe holiday weekend, everybody!

Under normal circumstances, I don’t hold with paranoia and I especially don’t hold with anti-government conspiracy theorist paranoia.

But, if you run a microbusiness, there are times when you really have to wonder.

More or less on the heels of learning about the new 1099 rules that are expect to increase the paperwork burden for microbusinesses by an estimated 1250%, I learned about another well-meant but disastrous proposal.

This time, the issue is worker misclassification.

This is the cost-saving practice in use among a relative handful of “unscrupulous employers” that treat their employees like employees in every way but call them independent contractors in order to save a ton of money on HR expenses.

You see, when you have employees, you have to provide them with disability insurance and unemployment insurance and workers comp insurance and, now, health insurance. You also have to pay withholding and payroll taxes — and even if most of that tax money comes out of the worker’s pocket, the employer still has to incur the expense of filing the taxes.

As you can see, there is a lot of expense involved in creating a job and that is particularly noteworthy because it is a primary competitive advantage that the independent contractor holds over his full-time wage brethren in the labor force.

Unfortunately, the Labor Department doesn’t like independent contractors (although they would probably deny that, if you asked them) because independent contractors are a form of worker who falls outside their jurisdiction. The existence of independent contractors creates a situation in which companies can hire people and still manage to evade their rules and regulations. That doesn’t sit well with them.

The IRS doesn’t like independent contractors because they seem to be very difficult to define. I’m not entirely sure why they are so difficult to define but I expect I’d get it if somebody sat down and explained it to me. Besides that, independent contractors are not subject to withholding and that just makes it too darned easy for them to avoid paying their income taxes.

This is where the tax gap rears its ugly head again.

So, Senator Tom Harkin (D-IA), who is the Chairman of the Senate Committee on Health, Education, Labor and Pension, and Senator Sharrod Brown (D-OH) have introduced legislation that wants to deal with the problem.

Their proposed solution, contained in the Employee Misclassification Prevention Act (S. 3254), has some elements that make sense and others that just don’t.

For example, the bill makes deliberate worker misclassification a crime under the Federal Labor Standards Act. That immediately ups the ante for violators, because the consequences that didn’t exist before would be in place. That seems like a very good idea.

On the other hand, the bill would require every business to notify every person who works for them to inform workers of their employment status in writing. It would also create a presumption that workers are employees rather than independent contractors in any case in which a written analysis had not been performed.

In most cases, as Committee Ranking Member Mike Enzi pointed out during a hearing held a couple of weeks ago, small business owners would end up getting penalized for paperwork infractions because evidently the bill does not get at actually dealing with misclassification. It just creates consequences for failure to do the paperwork.

We all know the likeliest target of most of the effects of this legislation, don’t we?

Now, in justice to all those clueless lawmakers who are inclined to support this measure, worker misclassification really is a problem, especially in industry sectors like construction and mining, where such misclassification can save companies buckets of money on workplace safety and worker protection compliance costs — while putting those poor employees at risk.

At the same time, without this kind of targeting (and it would probably be a bad idea for the feds to try to do that — there’s that pesky bit in the Constitution about “equal protection under the law”), the onus falls on folks it harms without intending to. In most transactions involving micro-companies and independent contractors, there are a few common elements.

First and foremost, the is usually some kind of contract that specifically states the relationship between the parties, states what the contracted work entails, payment terms and other logistics. The independent contractor decides practical things like their when and how they work and the relationship between independent contractor and business is less hierarchical and more equal.

But perhaps the most important piece of this particular puzzle is that it is the independent contractor who decided that they are an independent contractor, not the business.

Once again, I’m just waiting for the first time the IRS gets itself sued when it tells some consultant that he or she is an employee and must be treated like one.

And, once again, it really does begin to look like there are at least some people in Washington who just don’t like the way microbusinesses (including all those independent contractors that run nonemployer businesses) do business.

Which, I suppose, brings me back to anti-government conspiracy theorist paranoia.

It would probably be in the nation’s best interest in somebody told all those well-meant policy makers that they are in the process of biting off their own tail.

Weekly microbusiness news podcast

Well, I’m not going to do that again!

It was supposed to be an upgrade, really.

The original plan was to merge this podcast into a new Blog Talk Radio program called Microbusiness Conversations. The format of the show would be an initial ten minutes of microbusiness news followed by a twenty minute conversation with the week’s guest.

What I found out was that (a) this podcast really does not lend itself to that sort of format and (b) if I did that, I would leave my regular podcast listeners hanging. There was no convenient way to transfer you guys over to BTR.

So, here I am and I apologize for going AWOL for a couple of weeks.

As for this week’s news, don’t let the title fool you. The BIG story this week is all about data. There were two separate data releases from Advocacy and Census and both contained their share of surprises.

(If you want details, scroll down and check out last week’s posts.)

And, in addition to all that, we’re back with this week’s Policy Matters.

Listen to the Microbusiness News Briefs Podcast: Download audio file (06282010.mp3)

(Click here to subscribe to the podcast feed.)

I’ll post my recap of the radio show tomorrow.

For more information:

• Senate Committee on Small Business and Entrepreneurship
• SBA Office of Advocacy
• U.S. Census Bureau Nonemployer Statistics