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How are small businesses defined?

On Behalf of | Feb 8, 2021 | Tax Planning

Since the Small Business Administration (SBA) was created by Congress in 1953, determining how small a business should be counted as a small business has been a contentious question.

Federal agencies argue that a 500-employee cutoff makes sense. That’s the number established when forgivable loans were offered under the Paycheck Protection Program last year. However, this year the SBA reduced PPP-eligible companies to those with 300 or fewer workers.

How small is small?

SBA statistics show that 99.9% of all businesses in the U.S. are small businesses under the 500-employee or fewer definition. Of those companies, 89% have fewer than 20 employees. The needs of these much-smaller businesses are vastly different than those with hundreds or even dozens of workers.

Businesses with fewer than 20 employees typically need help with their day-to-day operations, such as having third parties do their payroll-tax returns and sales-tax returns as many don’t employ full-time bookkeepers. They also rely on guidance from tax and business law attorneys.

Tax planning is crucial for a business’s survival

Experienced tax attorneys, many of whom previously worked for the IRS, can be a vital resource for small and large businesses as well as startups. Your attorney can offer knowledgeable advice on tax strategies and potential benefits and conflicts over:

  • Selecting the proper entity
  • Purchase or sale of a business and its assets
  • Commercial real estate transactions
  • Dissolving business entities
  • Business succession and estate taxes
  • Business tax credits
  • Structuring salaries and benefits
  • IRS audits and settlements

Maximize the benefits and minimize the risks

Working with experienced tax counsel helps you understand complicated tax laws and how they relate to your business. Your lawyer can offer sophisticated strategies to reduce tax liabilities while withstanding scrutiny from the IRS.