Tax reform is all the buzz in Washington. Last week, House Republicans introduced the 429-page Tax Cuts and Jobs Act, which provides Americans with the most recent, and comprehensive look at what to expect in the tax reform effort. The plan proposes tax cuts and other changes that will affect all Americans, whether filing taxes as an individual, small business, or large corporation.

But what are the tax policies that will impact America’s tech companies and innovators? We’ve put together the ultimate Tax & Tech 101 to outline the key tax plans, issues, and terms driving the tax reform debate. Below we share a snapshot of the four key issues every app developer should watch during  tax reform plans.

  • IRS Auditing Practices

    • Why? The Internal Revenue Service (IRS) audits businesses of all sizes, but small businesses and tech startups with lean teams often face heavier burdens when faced with wrongful audits or unfair processes. To combat some of the worrisome tactics used to win judgments against taxpayers, tax reform efforts should address IRS auditing practices.
      • This summer, Representatives Jason Smith (R-MO) and Terri Sewell (D-AL) introduced H.R. 3220, the Preserving Taxpayers’ Rights Act, to address these activities with measures to:
        • prevent the IRS from using third party firms to conduct audits;
        • allow companies to resolve audit issues in the Office of Appeals rather than expensive Tax Court; and
        • uphold a tax audit’s statute of limitations, unless dealing with uncooperative taxpayers.
      • Keep an eye on changes to IRS auditing practices in forthcoming tax reform bills. These changes will have an impact on the burdens small tech companies and innovators face when addressing, challenging, or completing tax audits.

  • Repatriation

    • Why? When American companies want to bring profits earned in foreign markets into the United States, they must pay U.S. corporate taxes on top of the taxes levied in the country in which the profit was earned. This hurts small app developers and tech companies with an international presence, and it prevents large companies from bringing overseas profits to the United States to invest in small businesses.
    • Roughly $2 trillion are “trapped” outside of the United States due to repatriation rules. However, a friendlier tax environment would encourage larger tech companies to bring their foreign earned profits into the U.S. economy — profits that could be used for venture capital projects, acquisitions, and investment in small business innovators.
    • Proposed cuts to the corporate tax rate and changes to repatriation rules can create more capital to invest in America’s tech companies and small businesses.

  • Pass-Through Rate

    • Why? This issue is of key importance to small tech companies and app developers. The pass-through rate refers to the method by which business owners pay taxes through personal income tax returns. Nearly 40 percent of small businesses use the pass-through rate to pay taxes, but many large corporations use the rate to evade more burdensome corporate taxes.
    • The proposed tax plans include cuts and changes to the corporate tax rate, but app developers and tech innovators should keep an eye on changes to the pass-through rate, which will have a huge impact on how startups and small businesses are taxed.

  • Tax Code Simplification

    • Why? Taxes can be a cumbersome undertaking for businesses of all sizes, but tech companies, app developers, and small business innovators often have small teams that are unduly burdened by complex tax codes and rules. Complicated tax codes, or convoluted processes that result in IRS audits, disadvantage America’s small businesses.
    • The House Small Business Committee’s chairman and ranking member recently introduced H.R. 3717, the Small Business Owners’ Tax Simplification Act, to clarify and reduce tax challenges faced by most startups and tech companies. The bill would:
      • Allow small business owners to qualify for cafeteria plans such as health savings accounts (HSAs);
      • Align quarterly reporting deadlines with current quarter ends; and
      • Simplify worker classifications to enable companies to provide training to contractors without inadvertently classifying them as full-time employees.

In the coming weeks and months, we expect to see much discussion and debate about current and forthcoming tax reform plans. As new plans are introduced, we encourage you to keep your eye on the four key issues that carry weight for America’s tech innovators – IRS auditing, repatriation, pass-through rate, and tax code simplification. We will be sure to keep you informed so you know what these changes mean today and on April 15th.