July 21, 2004 - In an effort to lessen the accounting burden faced by small businesses, Senator Olympia J. Snowe, chair of the Senate Committee on Small Business and Entrepreneurship, introduced a bill last week that would allow businesses generating less than $10 million in annual revenue receipts to use cash accounting methods to report their income.
Under the "Small Business Cash Accounting Act of 2004," the revenue threshold would be raised from its current $5 million level, which Snowe says will reduce the cost of hiring bookkeepers, accountants and lawyers for thousands of small businesses who must now use the accrual accounting method.
The new legislation would in no way reduce the amount of taxes businesses pay, it would only alter when they might pay them. Accrual accounting requires that firms record income for tax purposes when a sale is made, as opposed to cash accounting, which allows firms to record revenue when the money is in hand. Accrual accounting is more difficult because decisions must be made concerning when a sale is actually complete. Additionally, all revenue recorded for accounting purposes may not be collected.
"Clearly, the cash accounting method is much easier and simpler for small business taxpayers to comply with," Snowe said, "Raising the threshold will reduce both time and money small business owners spend on complying with the tax code."
Small businesses spend more than 8 billion hours each year on government paperwork, according to the Small Business Administration's Office of Advocacy. More than 80 percent of that time is spent on tax forms. Efforts to reduce this time is surely welcomed by small businesses.
No vote on the bill has been scheduled yet, according to a spokesman for the Committee on Small Business and Entrepreneurship, but he noted the legislation is important to the committee and it hopes for a vote in the near future.