This is ridiculous, the ability to average out extreme expenses and windfalls for 5 years is neither “extraordinary” or “unjustified”, it is a vital part of running a business.
If I have to replace a truck (an enormous expense), this business expense will serve my company for the next 5 years. If I am forced to take the entire deduction in one year then 3/4s of this expense save me nothing because the first 1/4 of the cost already drops me to the lowest bracket. In this scenario I would be paying enormous truck payments for the next 4 years with no deduction to offset them, meaning all the payments would be taxed as income.
Likewise, if I sell a piece of equipment that I have depreciated out to zero more than one year after I have taken the last portion then I would owe the ENTIRE sales price in profit for one year (placing me in a much higher bracket) even though that windfall was 6 years in the making and does NOT reflect my annual income.
The averaging is what makes it possible to survive as a small business, only regular traders are taxed at a higher rate because they actually initiate an investment and conclude the same investment in the same year. That means their “profits” ARE an accurate reflection of their income that year, those of us who spend years setting the table for various Capital Gains use averaging to accurately reflect the overall time and investment that is represented as each effort is brought to fruition.
What you are proposing would basically mean that in up years, a business will be raped but in down years they are just on their own. This in no way would accurately reflect the annual profit of any business and since business cannot bring every investment to fruition in one calender year you would have raised the tax burden beyond the actual average profit.
Putting the business out of business.
This is not a “loophole”, it is common sense if you had ever earned your living as a business person instead of just regular paychecks. I have had two of the last 4 years produce ZERO profit but I have done better than most in my business because I also have not lost money. I have survived because of decisions that enable Capital to exist that was made in better years.
Those “better” years would not reflect my income accurately and those zero profit years would not reflect my income accurately either, averaging is the only way to get an accurate assessment of what tax bracket I belong in.
You have absolutely no idea what you are talking about as evidenced by this post, you just use cliches to spout Class Warfare without ever having risked anything yourself.
“Income is income” is not what you are advocating, you are advocating that all income is annual income
That is ridiculous and juvenile.