How the US Tax Code Kills Entrepreneurship

Sent to us by a reader.

Tax Revolution Institute – by Chloe Anagnos

It’s no secret that dealing with the Internal Revenue Service is complicated. But trying to deal with the IRS while also attempting to make sense of the US tax code is just downright daunting.

Now containing 74,000 pages, the federal tax code has almost tripled in the last 30 years. At the current rate it is growing, it will surpass 100,000 pages by 2050.  

But what most Americans don’t realize about the complexity of the US tax code is how it kills entrepreneurship, especially in younger generations.

According to data from a Wall Street Journal analysis, about 3.6 percent of households headed by adults younger than 30 owned stakes in private companies in 2013. In 1989, 10.6 percent of young adults owned stakes in private businesses.

The Wall Street Journal lists a multitude of reasons why young people aren’t becoming young business owners. Those reasons could range from little to no savings after paying back student loans, fear of taking risks, new rules about how they can obtain bank loans, or understanding and complying with federal regulations.

Jessica Juillerat, a recent Purdue University graduate, is interested in starting her own event-planning business. However, she is worried that trying to comply with tax rules and regulations will cost too much.

“The only thing holding me back from starting my own company is really the logistics that are associated with it. I feel like I have the talent, but the cost and paperwork that come with hiring a lawyer to help me is just not feasible right now,” Juillerat said.

Trying to navigate those regulations alone can be time consuming and frustrating, says Emily Mishler, also a Purdue University graduate.

“I spent a lot of time and effort opening a nonprofit LLC, and I don’t think it’s worth attempting to open one for a for-profit company by myself at this point,” Mishler said.

Mishler is hoping to attend graduate school to study business administration. She thinks those courses could help her to better understand how to comply with the IRS and its policies.

“I’m thinking of dissolving my current LLC, but I’m not sure how to go about that or if I would owe the IRS anything, which is scary to think about because I wouldn’t want to inadvertently get in trouble,” she said.

According to the IRS website, small-business owners are required to file a Schedule C with their personal income-tax return that outlines business income and expenses. Because Schedule C’s don’t require small-business owners to submit receipts or other records with their returns, they are subject to a higher level of scrutiny by the IRS. (And it’s much easier for the IRS to validatetheir own official documents in the form of W2’s or 1099’s.)

So how can this trend be reversed?

It is imperative that we find a way to simplify the tax code so that people of all ages have the opportunity to open and operate a business.

Doing this would especially benefit young people. A simplified tax code would mean money saved on hiring attorneys to help file paperwork, along with saving money on costly advanced-degree programs. (And that’s not to mention that the average two-year MBA costs more than $60,000.) The money that would have been spent on trying to decipher the tax code could be better used in funding new businesses.

Lastly, Americans shouldn’t live in fear of the IRS when the agency itself apparently can’t even enforce some of its own rules. There is no reason why small businesses should be scrutinized more for attempting to comply with IRS regulations.

8 thoughts on “How the US Tax Code Kills Entrepreneurship

  1. It’s working and operating exactly as intended. How they even exist should tell you that begging for audit or restructure will be futile and worse. A come to Jesus moment is necessary for those who believe that’s possible using THEIR system.

  2. The answer for starters is to learn the truth about the Federal Income Tax. Buy a copy of Peter Hendrickson’s book Cracking the Code. Or go to Lost The tax simply does not and cannot apply to private sector earnings without fraud and deception applied to an ignorant population.

  3. “… which is scary to think about because I wouldn’t want to inadvertently get in trouble,” she said.”

    What the hell would you call what we’re in NOW, lady?

    Be sure to request a window seat on the FEMA bus.

  4. The answer is to simply wipe it all out and forbid it. Period. Voila! We solved it! It was only created in the first place to protect corporations and the IRS is the strong arm of it all.

  5. ““I’m thinking of dissolving my current LLC, but I’m not sure how to go about that or if I would owe the IRS anything, which is scary to think about because I wouldn’t want to inadvertently get in trouble,” she said.”

    Really? Last time I checked paying taxes was not only voluntary, but also unconstitutional, so what are you afraid of?

  6. What document can they produce that gives anyone at the IRS authority over my property or life? The only thing they can show you that they have any authority over you or your property is the illusion and fear. If that fails, they have the power of bullets and force.

Join the Conversation

Your email address will not be published. Required fields are marked *