You hear the term “small business” all the time in today’s media. Yet you would be surprised by just how many people actually think that it takes to start up a small business. The reality is, in today’s economy, it takes more than ever to start up a small business. Well, almost every survey you have ever given regarding small business, and almost every statistic you have ever heard quoted about small business, is actually referring to companies defined by insane parameters such as this. So, if the definition of a small business is one with fewer than fifty employees, then obviously the business that falls into that category would not be a small business at all, but rather a small restaurant.
So, when someone asks you about starting a small business, or about small restaurants, what do you tell them? The truth is, the definition of a small business has changed over the years. When I used to work in marketing, we used to use the ARB score to determine the definition of a small business. Basically, the ARB is the average number of employees for a particular business. This number became so wildly different from year to year that we stopped using it altogether.
Now, instead of looking at the ARB, we looked at an independent owner statistics set. As you probably know, every major accounting service has its own size standards. Even for them, sometimes independent owner statistics set is simply too specific. For example, many of the publicly held companies are required to list their CEO, CFO and other highest-paid employees. In many cases, those employees make upwards of six figures, which is way above the area that most small business owners fall into.
So, even though you may not be a business owner, do not confuse the term “small business” with the term “small.” If you are an owner of a small business, there are certain things that you should do to keep your taxes low. As previously mentioned, many small business owners consider themselves to be self-employed. Therefore, if you have an independent contractor working under you, it may be good for your bottom line to pay him or her a little bit more in tax than you would otherwise. Do not be surprised if you receive a big enough tax refund this year to pay the taxes of your independent contractor over the next 12 months. Granted, it might not be a lot, but it can add up.
The current definition of a small business is based on the number of employees. The IRS has recently redefined the definition of a small business as any business with fewer than two employees. That’s a rather broad definition, but it’s certainly up to the courts and Congress to redefine the term again. What’s important to remember, though, is that even if the IRS redefines the definition of a small business, you as an owner have the right to file an uncontested audit. This gives you the opportunity to provide the IRS with additional information about how you, as the business owner, operate your business.
There are several other factors that determine the size of a small business. One of them is the average number of hours that your business is open during any one calendar month. Another important factor, too, is the average number of days your business is closed. Still another very important factor is your geographic location. All these things add up to determine the size of a small business.
If you’re a small business owner and are concerned about how much you could be paying out in taxes, you need to consult with a certified public accountant. He or she can help you calculate your average annual receipts and figure out your tax liability. Then, using the correct formula, he or she can provide you with a good estimate of the amount of money that you could be saving if you were to reevaluate your tax laws.
In summary, the small business size standard definition used by the IRS still depends on your perception of it. If you think of it as something imposed on small businesses by large corporations, you’re likely to feel that it’s an unfair standard. On the other hand, if you think of it as something that small business owners have to deal with because of the regulations surrounding the operation of a sole proprietorship, you might consider it the only way to properly determine the size of your business. In the end, though, you’ll probably be the one to control the size of your business, not the IRS.