I’ll be honest with you—I don’t watch the news much. Half the time I’m surprised by the weather. But the other night, I found myself lying awake thinking: What if income tax disappears and everything shifts to tariffs? Would anyone even need bookkeepers anymore?
Classic late-night spiral.
So I did what any responsible adult does when anxiety hits: I queued up a sleep meditation podcast, told myself I’d deal with it in the morning, and (eventually) fell asleep.
Spoiler alert: bookkeepers aren’t going anywhere. In fact, if the Fair Tax Act becomes reality, we might be even more essential than before.
Let’s break this down in a two-parter. Today, we’ll start with what the Fair Tax Act actually proposes and how it could shake up small business finances.
What the Fair Tax Act Means for Small Businesses (and Why Bookkeeping Still Matters)
You may have heard some chatter about the Fair Tax Act of 2025—it’s a proposal that would eliminate income taxes, payroll taxes, and even the IRS. Instead, it would introduce a national sales tax.
Sounds wild, right? Let’s take a look at what’s actually on the table.
What Is the Fair Tax Act?
Here’s the quick version: instead of paying federal income tax, both businesses and individuals would pay a national sales tax on goods and services. That means:
✅ No more income tax returns
✅ No more payroll taxes (bye-bye, Social Security and Medicare withholdings)
✅ No more IRS (yes, really—states would handle tax collection, like they do with current sales tax)
✅ A single federal sales tax—estimated around 23%–30%—collected and remitted by businesses
If passed in 2025, this would take effect January 1, 2026.
What This Could Mean for Your Business
At first glance, it might seem like good news—no more quarterly estimates or tax-season panic. But this new system would create some big shifts in how your business handles money. Here’s what you should know:
1. You Become the Tax Collector
Instead of filing income taxes, you’d now be responsible for collecting and remitting federal sales tax on everything you sell. That’s a whole new ballgame, especially if you’ve never dealt with sales tax before.
🔹 Service-based businesses (like consultants, coaches, creatives) would now need to collect tax—even if you don’t currently.
🔹 E-commerce sellers would have to track both federal and state sales taxes, no matter your revenue.
🔹 Retailers and product-based businesses would need solid systems to manage this accurately.
Tools like Xero, which already support multi-level sales tax tracking, would be more valuable than ever.
2. Customer Pricing Might Get Tricky
Tacking a national sales tax on top of state sales tax could push prices up. That might affect your:
🔸 Sales volume (if customers push back)
🔸 Competitive edge (big corporations could absorb the increase more easily)
🔸 Cash flow (because you’d be setting aside that tax money instead of spending it)
Bookkeepers like me already help clients manage this for state sales tax. A national version just raises the stakes.
3. Say Goodbye to Deductions
Under the current system, your business can write off legitimate expenses—home office costs, software, mileage—to lower your tax bill.
But if there’s no income tax? No deductions. No write-offs. No lowering your tax burden by reinvesting in your business.
That means budgeting and cash flow management will become even more important.
4. Bookkeeping Is Not Optional (It Never Was)
Even if income tax disappears, solid bookkeeping will still be non-negotiable because:
✔️ You’ll need to track and remit sales tax precisely
✔️ Cash flow tracking will be crucial to avoid misusing sales tax funds
✔️ Without deductions, you’ll need accurate reports to forecast expenses and revenue
Bottom line: your books still need love and attention. Possibly more than ever.
5. When Would This Start?
The Fair Tax Act (H.R. 25) was introduced in January 2025 and sent to the House Committee on Ways and Means. It hasn’t gone further yet—but if it does pass, the system would kick in on January 1 of the next year, so January 1, 2026.
What Can You Do Now?
Even if the bill doesn’t pass, it’s a good idea to prepare. Forward-thinking business owners should:
📌 Get familiar with how sales tax compliance would work in your business
📌 Fine-tune your budgeting and cash flow systems
📌 Keep your records clean and audit-ready
📌 Work with a bookkeeper (hi! 👋) who’s already thinking about this for you
The Bottom Line? Bookkeeping Isn’t Going Anywhere
No matter what changes come, Creative Balance Bookkeeping is here to help you stay calm, compliant, and in control. If you’ve got questions about how a potential tax shift could affect your business, let’s talk it through.
And stay tuned for Part 2—we’ll dive into tariffs and what they could mean for your bottom line.
