Economic Recovery Among Small and Medium Enterprises (SMEs)

Economic recovery for SMEs
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Economic recovery for SMEs
The unexpected circumstances set by the COVID-19 pandemic poses cash flow challenges to small and medium enterprises (SMEs) even as they attempt recovery. Many SMEs currently face challenges that include new customer expectations, muted demands, and operational challenges caused by the new restrictions that aim to limit the growth of coronavirus. These SMEs rely on the federal and state governments to develop tax policies to stimulate their recovery. Challenges still arise on the scope of changes that should be instituted on taxes that affect SMEs, such as income tax, property tax, and sales and use tax that is all limiting the efficiency by which SMEs intent to recover. This research explores taxation and tax administration changes on various taxes that could fuel the recovery of SMEs after COVID-19. Strategic changes in tax, including additional time in addressing tax affairs, the establishment of quicker refunds, revitalization of the audit policy and tax certainty, and enhanced services should help with restructuring income, property, and sales taxes that will escalate recovery among SMEs.
Tax Types
SMEs are subjected to various federal and state taxes that affect their financial liquidity when faced with unprecedented circumstances. The first type of tax that SMEs pay is the income tax. In the US, all businesses, except partnerships, must file income tax returns annually (Williams, 2020). The federal income tax is pay-as-you-go, and businesses are required to pay the taxes as they earn income throughout the year. Since the income tax stems from the revenues that an entity receives throughout the years, most policies would not affect its structure. However, the amount of returns that businesses are receiving currently has dropped considerably depending on the industry. Industries such as hotels, bars, and restaurants, and schools are the most affected (Bartiromo & McDowell, 2020). With limited revenues, such small organizations cannot execute operational needs effectively. Changing the income tax policies would benefit SMEs in resource re-engineering.
The self-employment tax and the employment tax are the other taxes that affect inputs in SMEs. SMEs that are sole proprietorships do not bear separate legal identities from their owners. As such, they are subjected to employment and self-employment taxes (Williams, 2020). SMEs with employees must file taxes that include federal unemployment tax, federal income tax withholding, as well as social security and Medicare taxes. SMEs whose owners work for themselves are still required to pay the self-employment tax. It is the self-employment tax that offers social security coverage. Only SMEs whose net earnings are below $400 are exempted from the self-employment taxes. With the changing revenue streams, restructuring self-employment taxes is a necessity.
There are more tax types that the federal and state governments need to explore to assist SMEs. Excise tax is among such taxes. An SME is expected to pay excise taxes if it is involved in receiving payment for certain services, using various equipment, operating certain kinds of businesses, and manufacturing or se...