Stay Informed!

Public Policy

SETI’s primary policy objective is to reduce the chance that a first-time self-employed tax filer has a high‐stakes, tax code encounter in which she or he feels inexperienced, uninformed and isolated. SETI engages with policy partners to help analyze and understand self‐employment tax policies. At the national level, SETI works with Aspen FIELD, the Association for Enterprise Opportunity, the National Community Tax Coalition and the IRS’s Small Business/Self‐Employment Division.

At the local level, partners in both the microenterprise and the free tax preparation fields are important in this policy dialogue.

The policy dimension of SETI offers a “win-win-win” strategy:

• A “win” for new businesses (and their households) who benefit from “getting their businesses right” with tax authorities and from accessing valuable social safety net and wealth-building opportunities that are driven exclusively through the tax code.
• A “win” for the IRS which struggles every year with the fact that non-compliant self-employed filers are responsible for a large share of the “tax gap” (difference between taxes owed and taxes paid).
• A “win” for the local communities which benefit from a thriving self-employed business sector that pays taxes into the local economy.

Federal

As the primary identification point for new entrepreneurs, Schedule C has been largely overlooked as an opportunity to directly foster and build new businesses. Rather than serve as a welcoming gateway that encourages new enterprises and helps them “get their business right,” the Schedule C tax interface tends to have the opposite effect.

Much of SETI’s public policy agenda at the federal level is designed to make an entrepreneur’s first encounter with Schedule C one which:

• Honors and acknowledges the incredible significance and difficulty of starting a business.
• Facilitates the new business’s learning curve and takes advantage of the “teaching moment” that filing Schedule C – a basic Business Profit & Loss Statement – provides.
• Educates new businesses about important asset-building opportunities available to the self-employed only through filing Schedule C.
• Better helps low-income self-employed households gain eligibility for the country’s basic safety net of Social Security and Medicare.

The following are national tax issues that affect the self-employed:

• Sole Proprietor Tax Provisions in the Small Business Jobs & Credit Act 2010
• Making Work Pay Tax Credit
• Federal EITC
• Child Tax Credit

State

Nearly every state has adopted a series of business tax credits designed to improve the state’s economic conditions. While these state laws may be “size neutral” and may even reference and target “small businesses” as tax credit recipients, hardly any include, let alone target, self-employment jobs.

Indeed, most state laws either presume, or the administering state agency utilizes, the state’s corporate taxation system. As a result, tax credits are next to impossible to access by unincorporated businesses (sole proprietors) because they pay business taxes through a completely separate taxation system from corporations.

In this section, SETI explores state tax credits and deductions that could be available to self-employed businesses.

• State EITC
• New Entrepreneur Tax Credit