Tax Week: Small Business Tax Issues

As part of NAHB’s examination of tax issues and the housing sector, our focus now turns to small business tax concerns.

Earlier today, Marty Mitchell of Mitchell and Best Homebuilders testified before Congressional Committee on Small Business on behalf of the nation’s home builders. His testimony included a number of facts that illustrate the importance of small businesses to housing.

NAHB Census of Membership data for 2010 reveals that 80% of businesses that belong to NAHB are organized as pass-thru entities or sole proprietorships. In particular, 47% of businesses are organized as S Corporations and 25% are LLCs.

As measured by workers, 79% of NAHB builder members have less than ten employees, with the average member supporting approximately 12 employees. Only 2% of NAHB builder members have more than 100 employees.

Approximately 52% of NAHB builder members have less than $1 million in gross receipts, and 84% have less than $5 million in gross receipts. Approximately 76% of NAHB builder members built 10 or fewer homes in 2010.

Statistics of Income data from the Internal Revenue Service provide a similar story for the construction sector as a whole. Data for tax year 2008, the most recent complete data available, indicate that there were about 767,000 corporations in the construction business. Of this total, approximately 571,000 were S Corporations. Additionally, there were 203,000 partnerships and 2.8 million sole proprietorships in the sector. 

All of these non-C Corporation taxpayers in the construction industry pay their business income taxes on individual income tax forms.

Consequently, the scheduled expiration of the 2001/2003 tax cuts on individual rates represent a business tax hike for a large segment of the residential construction sector. Moreover, issues like the Alternative Minimum Tax (AMT) and the estate tax complicate tax and business planning for small and family owned firms that are common among home builders.

Mitchell’s testimony also raised the issue of tax from cancelled or restructured business debt that has affected some home builders due to the effects of the Great Recession. These taxes are another factor hindering a recovery in the home building sector.

 

Click here for a look at the mortgage interest deduction. And click here for a look at the real estate tax deduction.



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