One-third of small-business owners spends two full work weeks every year dealing with federal taxes, and 87 percent need to pay an outside accountant or other tax return preparer to do their taxes, according to a new survey.
The survey, by the National Small Business Association, was released Monday, one week prior to the April 18 tax-filing deadline. The survey found in general that the complexity and inconsistency within the Tax Code are depleting small businesses of their time and money so they can handle the administration of federal taxes.
“The federal Tax Code is a massive resource drain for small businesses,” said NSBA chairman Larry Nannis, a shareholder at Levine, Katz, Nannis + Solomon, P.C.
Payroll taxes ranked as the most burdensome taxes—both financially and administratively—for small businesses. Only 44 percent of small businesses said they use an external payroll company. Even those that do use an outside payroll processor reported a significant amount of time dedicated to dealing with payroll taxes.
Given the relatively high number of small businesses that handle payroll internally, the majority (63 percent) said the new W2 reporting requirement, beginning in 2012, which will require employers to report their health care spending, will have a negative impact on their business.
Compounding matters, IRS audits of small businesses and funding for enforcement activities continue to rise despite new research that shows the IRS place undue responsibility for the tax gap upon the small-business community. Illustrating the growing fear and mistrust small-business owners have for the IRS, less than half (47 percent) of eligible small-business owners claim the home office deduction, primarily due to concerns it will "red-flag" their return for an audit.
“The time for a serious debate on broad tax reform is now,” said NSBA president Todd McCracken in a statement. “The ever-growing patchwork of credits, deductions, tax hikes and sunset dates is a roller coaster ride without the slightest indication of what's around the next corner. This is unsustainable and unacceptable.”
Given that 83 percent of small businesses are pass-through entities and pay business taxes at the individual income level, the majority support proposals that would reduce the corporate and individual income tax rates and eliminate certain deductions, as well as sweeping reforms aimed at tax simplification.
For the full survey results, click here.
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