J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Special Rules for Small Businesses

Sometimes it pays to be small. The tax laws contain a number of special rules exclusively for small businesses. But what is a small business? The Small Business Administration (SBA) usually defines small business by the number of employees—size standards range from 500 employees to 1,500 employees, depending on the industry or the SBA program (these new size standards are currently under review for certain business sectors). For tax purposes, however, the answer varies from rule to rule, as explained throughout the book. Sometimes it depends on your revenues, the number of employees, or total assets. In Table I.1 are various definitions from the Internal Revenue Code on what constitutes a small business.

Table I.1 Examples of Tax Definitions of Small Business

Tax Rule	Definition
Accrual method exception for small inventory-based businesses\break (Chapter 2)	Average annual gross receipts of no more than $10 million in the 3 prior years (or number of years in business if less)
Bad debts deducted on the nonaccrual-experience method (Chapter 11)	Average annual gross receipts for the 3 prior years of no more than $5 million
Corporate alternative minimum tax (AMT) exemption for small\break C corporations (Chapter 22)	Average annual gross receipts of no more than $7 million ($5 million for the first 3-year period)
DbK retirement plan (Chapter 16)	500 or fewer employees
Disabled access credit (Chapter 10)	Gross receipts of no more than ...