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The Burden of Accounting and Taxes on Small Business

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January 29, 2015

The small business mentoring organization SCORE has compiled some new statistics demonstrating how much time and money small businesses spend each year on accounting, taxes and payroll administration.

The results may be dismaying to many accountants and tax professionals.

According to the small business owners polled by SCORE, 40 percent said bookkeeping and taxes are the worst part of owning a business.

Specifically, 47 percent indicated they dislike the financial cost, 13 percent said they dislike administrative headaches and time, 13 percent dislike the complexity of compliance, 10 percent dislike the changing regulations and confusion, 8 percent dislike all the paperwork, and 8 percent dislike the inequity of the tax code.

(Itís a little hard to understand how 92 percent might like all the paperwork and the inequity of the tax code, but thereís no accounting for taste.)

The majority of small business owners said they spend more than 41 hours on tax preparation each year. That breaks down to 40 percent of small business owners who said they spend over 80 hours a year, 18 percent spend 41 to 80 hours per year, 15 percent spend 21 to 40 hours a year, and 28 percent spend less than 21 hours per year.

The annual costs of the administration of taxes, internal costs, legal fees, etc. can be substantial as well, with the majority spending at least $1,000. Of the small business owners surveyed, 23 percent said they spend $1,000 or less, while 31 percent spend $1,000 to $5,000, 18 percent spend $5,000 to $10,000, 12 percent spend $10,000 to $20,000, and 16 percent spend $20,000 or more.

Many small businesses process their payroll in-house to keep costs down. Of those small business owners that do their own payroll, 21 percent said they spend no time at all (perhaps because none of their employees get paid?), 26 percent spend 1 to 2 hours a month, 26 percent spend 3 to 5 hours a month, 17 percent spend 6 to 10 hours per month, and 11 percent spend 10+ hours/month.
Payroll costs vary widely, ranging from 8 percent of small businesses that pay less than $50 per month for payroll services to 5 percent that pay over $5,000 a month.

For more information, you can download SCOREís infographic here or view it below.

Comments (5)
Mike, it is not that 92% like the paperwork and only 8% dislike it. It's that of all the reasons to dislike it 8% chose paperwork as the most overriding factor and 47% chose the financial cost as the most overriding factor, etc. DUH !!

Shoot there's plenty of reasons to not like "payrolls" and "bookkeeping"; but hell if you're going to run a business you better do both if you expect to be profitable. Taxes are not the only reason to do bookkeeping.
Posted by cjkcpa | Tuesday, February 03 2015 at 1:20PM ET
Timmy F, it's plain you've never done business in another country. The paperwork and costs related to tax and compliance to Government regulation is onerous in most countries. Much worse than the US. I had businesses in Mexico through the 90's and mid-2000's. What I had to pay my "contador" was highway robbery. And we won't even talk about bribes!
Posted by DrHoodoo | Tuesday, February 03 2015 at 11:11AM ET
Mike: I don't see how this is to the accountants' dismay?
This is a great opportunity for accountants to take the thing their clients and prospects hate most off their hands.
One man's trash is a CPA's treasure...
Posted by adefelice1 | Friday, January 30 2015 at 1:41PM ET
Right on Timothy F!!!
Posted by topbeancounter | Friday, January 30 2015 at 12:29PM ET
These costs are the direct result of Congress failing to reform the tax code. The costs cause a competitive disadvantage to US companies in international trade by foreign companies having lower product costs and not having these costs in their overhead from over regulation by the US Federal government.
Posted by Timothy F | Friday, January 30 2015 at 9:07AM ET
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