The Standard Business Deduction

7 Pages Posted: 31 Jul 2018  

Kathleen DeLaney Thomas

University of North Carolina School of Law

Date Written: July 10, 2018

Abstract

This paper describes a proposal for a standard business deduction ("SBD") for small businesses. The SBD would work like the regular standard deduction. The latter is a fixed amount that is claimed in lieu of claiming itemized deductions below the line. The SBD would be a fixed amount that is claimed above the line in lieu of deducting actual business expenses. Taxpayers claiming the SBD would report their gross business earnings, subtract the SBD, and arrive at net business income. No Schedule C would be necessary. Like the regular standard deduction, claiming the SBD would be optional for the taxpayer. If a taxpayer’s actual business expenses exceeded the SBD, he could instead opt to claim those expenses.

An SBD would greatly simplify the tax system for small business owners. Taxpayers who chose to claim it could be relieved of the burden of tracking business expenses during the year and could self-prepare their tax returns without the need for expensive tax preparation assistance. Not only would the SBD reduce socially wasteful taxpayer compliance costs, but it would also reduce IRS enforcement costs. Such simplification should be attractive to policymakers on both sides of the aisle and would benefit the government and taxpayers alike.

Keywords: Tax, tax policy, small business, tax simplification, standard business deduction

JEL Classification: K34

Suggested Citation

Thomas, Kathleen DeLaney, The Standard Business Deduction (July 10, 2018). UNC Legal Studies Research Paper. Available at SSRN: https://ssrn.com/abstract=3211427 or http://dx.doi.org/10.2139/ssrn.3211427

Kathleen DeLaney Thomas (Contact Author)

University of North Carolina School of Law ( email )

Van Hecke-Wettach Hall, 160 Ridge Road
CB #3380
Chapel Hill, NC 27599-3380
United States
919-843-7630 (Phone)

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