Complicated, complex, and confusing are just a few words that come to mind when I think about the nation's tax code. And during a time when words like bipartisanship and common-sense are not often heard in Washington, I am proud to have recently led an effort in the House that is both bipartisan and makes common-sense for the people of Missouri.
It all centers on whether or not folks should be able to use the cash method of accounting or be forced to use the accrual method of accounting when doing their books. The cash method has traditionally been popular with many folks, because, under it, one pays taxes on the money that comes in. Those who use the cash method of accounting include many of our nation's job creators and professionals including accountants, architects, attorneys, dentists, engineers, farmers, physicians, and financial service professionals.
As reforms to the tax code have been discussed, a few people in Washington have suggested forcing many more small businesses to use the accrual method instead of the cash method. I strongly support simplifying and fixing our broken tax code, but mandating a switch in accounting systems for small businesses is not the way to go.
In contrast to cash accounting, under the proposals that have been floated in Washington, these small businesses and small professional firms would have to switch to the accrual method of accounting. This method recognizes when a service is performed, regardless of when cash is collected. The cash method is preferred by so many because they often do not have the benefit of matching revenues to expenses, many of which are already fixed.
Furthermore, the cash accounting method is the foundation which these businesses have built their business models around. With the accrual method, these businesses would be forced to pay taxes on income they have not yet received which would result in being taxed at a higher tax bracket or even be subject to additional taxes. It is an unfortunate fact of life that sometimes businesses and professionals are not paid on time, in full, or at all for their goods and services, and the accrual method does take this fact into consideration. Job creators and professionals often don't have the extra resources when it comes to maneuvering the complicated tax structure, and, ultimately, this proposal would hinder small businesses and professional firms from growing, and, even worse, it would require them to pay taxes up front on money that may never arrive.
As I investigated this issue, I was pleased to find that a bipartisan majority of the House of Representatives agreed with me. Recently, I sent a letter to the leaders of the House with the backing of 233 of my colleagues urging them to consider the importance of the cash accounting for those that utilize this method of bookkeeping. It is clear when over half of the House of Representatives heard from constituents and small business owners in their districts; this is an issue that should not be ignored.
As tax reform discussions continue through the remainder of this year and in the next Congress, I believe the House of Representatives sent a strong message to House leaders to recognize the importance of the cash method of accounting. America is long overdue for a tax code that is based upon fairness and simplification, not complex and confusing, which is why I will continue to support the ability of small businesses, farms, and small professional service firms to use the cash method of accounting.
U.S. Rep. Blaine Luetkemeyer, R-Mo., represents the state's 3rd District, which includes Jefferson City. His local office can be reached at 573-635-7232.
Web link: