BizSugar.com › Taxes › Small Businesses Fight to Scuttle Tax Proposals

Advocates for small businesses are fighting changes in tax laws that the Bush administration says are aimed at cracking down on tax cheating, particularly by the self-employed. These changes will create a mountain of new paperwork that will be cumbersome and costly.

One proposal, part of President Bush's budget, would require detailed reporting of credit card transactions to the Internal Revenue Service. Another would require most owners of small businesses to report any payments above $600 to corporations, like Federal Express, for services.

But one important change was added in closed-door budget negotiations in 2006 requiring federal, state and local agencies to withhold a percentage of payments from contractors — touching everything from the cleaning of schools to the paving of roads to supplying military uniforms.

With the economy slumping, Congress could once again adopt last-minute measures to raise revenue. A growing number of lawmakers, both Democrats and Republicans, want to pay for new spending by closing what is known as the “tax gap” — the shortfall of some $300 billion in uncollected taxes. The government says that at least $100 billion of that comes from underreporting by the self-employed.

Individual merchants say the reporting of credit card receipts will add significantly to their paperwork, and make it easy for the I.R.S. to initiate audits if credit card totals do not match what the small-business owner reported.