CFED continues to advocate for improved IRS policies for the self-employed with The Self-Employment Tax Initiative (SETI).
CFED released “The VITA Value Proposition”, a report that justifies the expansion of free tax assistance programs to include low-income entrepreneurs. The report argues that tax time is a crucial opportunity for low-income entrepreneurs to formalize their businesses, thereby minimizing risk and gaining access to money-saving tax credits.
Our involvment: California SETI
The CA-SETI is a part of a national strategy developed by CFED to reach large numbers of entrepreneurs during tax season who could benefit from business assistance and microloans. Learn more about the national strategy at CFED or download their briefing: Empowering Entrepreneurs At Tax Time. This brief includes research about:
- The role of self-employment in job creation and community wealth building.
- The vital connection between tax preparation and microenterprise development services.
- Key lessons gained through four years of the SETI Demonstration and other SETI partnerships based on information gathered from our local partners and grantees, including programs operating in rural regions and/or serving minority entrepreneurs
In June 2012, CFED put together The VITA Value Proposition: Expanding Free Tax Assistance Program Parameters to Empower More Low-Income Microbusinesses – a white paper that argues why the IRS should expand its Schedule C Volunteer Income Tax Assistance (VITA) Pilot to the entire VITA system.
Right now, Micro Enterprise Development organizations (MDO’s) reach 1% of low and moderate income entrepreneurs in California. Additionally, business owners who operate in the informal economy could formalize their businesses and enter into the Social Security system. California house an estimated 2 million low income and start-up self-employed businesses. All of them must file taxes, but most have no place to turn for the comprehensive business tax preparation and planning assistance that they need to “get their businesses right.”
CAMEO conducted a four year CA-SETI (originally three years) demonstration project from October 2007 through June 2011 (tax years 2007-2010). The purpose of this project was to assist MDOs reach new customers during the tax preparation process, and in this way provide needed business assistance and financing to micro-business owners.
CAMEO is satisfied with the primary outcomes achieved by this four-year demonstration project.
- Significant numbers of new low income micro-business clients were served by MDO’s offering Schedule C tax preparation services. The number of clients served went from 78 in 2007 to 924 in 2010.
- Sixty percent of individuals who filed Schedule C via the VITA site, accessed business services at the MDO partner.
- Sixty percent of Schedule C filers are new filers, thus demonstrating that outreach is an effective way to formalize self-employment.
- Client businesses appear to increase their income as a result of participation: thirty-one percent of returning Schedule C clients increased their adjusted gross income. Fifty-eight percent of clients obtained the Making Work Tax Credit; seven percent ‘patch’ family income through self-employment and wages.
CAMEO intends to continue to partner with CFED on the advocacy efforts with the IRS and also continue to promote the SETI model as a viable marketing opportunity to MDO’s not only in California but nationally. CFED’s advocacy efforts are paying off; for tax year 2010 the IRS officially allowed Schedule C’s to be prepared at select VITA sites. To date (to our knowledge) California VITA sites are not among those officially sanctioned by the IRS; however, certain sites were able to obtain special approval while other sites were hampered by not being able to serve all businesses. The task for CA-SETI is to continue to demonstrate a successful model and support CFED’s advocacy work with the IRS to increase the scope of the VITA program in California to include Schedule C. Informal and self-employment income is common in California, it is imperative that free tax preparation services increase so that formalized businesses are incorporated into the tax base.
CAMEO thanks Citi and CFED for their support of this innovative project.
Read the CA-SETI FY2010 Final Report.
The 2009 RFP and attachments
- California Self-Employment Tax Initiative RFP, September 2009
- Attachment A – VITA site / Tax Preparer Track
- Attachment B – H&R Block Track
CFED and Bank of the West are pleased to share a new Financial Education Guide designed specifically for taxpayers receiving assistance at VITA programs. This free, easy-to-read guide (available in English and Spanish) walks clients through some important things to consider when they receive their refunds to help them make the most of the money they expect to receive.