A new report highlights how small businesses are getting duped out of financial opportunities.
Big corporations want to be just like small business. At least when it comes to their taxes.
Large businesses are disguising themselves as small businesses to reap a smaller tax rate, according to a new report from the Center for American Progress.
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CEOs of big companies are able to do this by classifying their companies as S corporations—also known as pass-through businesses—which exempts them from paying any corporate income tax, according to the report.
“I am sure there are corporations which are taking advantage of elements of the tax code to minimize their tax obligations,” NFIB spokesman Jack Mozloom told CBS News on Aug. 16.
Normally, large businesses are viewed as C corporations, which means they are subject to a 35 percent corporate income tax in addition to capital gains taxes that shareholders pay on their stock dividends. But more than 100,000 C corporations skirt this requirement under an S corporation classification, CBS News reported. That means the company’s profits “pass through” corporate taxes to its owner, who pays individual income taxes on them.
Seventy-five percent of small businesses are classified as S corporations, and 90 percent of NFIB members own companies with fewer than 20 employees, Mozloom told CBS News. Part of the reason big businesses can exploit this loophole is the discrepancy in how small businesses are defined, according to CBS News.
The Small Business Administration defines a small business as an entity with fewer than 500 employees, but the IRS defines a small business as a company with fewer than $10 million in assets. This can allow some companies that make more than $10 million to pay no corporate income tax, CBS News reported. This can have real consequences for small business.
A study from the U.S. Department of Treasury estimates that the federal government has lost $790 billion in tax revenue from 2003 to 2012, according to the Center for American Progress.
