Small businesses burdened during tax seasonDate posted: 5/21/14 11:15:00 AM
Laying out a business blueprint is vital to the success of most companies across the nation, but it can be especially important for small-business owners who lack the resources of larger ventures or major corporations. That's why tax season can be such a trying time for entrepreneurs. Not only must businesses dole out some cash to the government, but the amount of time it takes to run the books can severely alter a small businesses plans.
According to a recent survey by the National Small Business Association, more than half of small businesses revealed the administrative burden and paperwork linked with tax season creates the greatest harm for their business. A slightly smaller total, 47 percent, stated the actual tax bill is what poses the greatest threat to the success and vitality of their company.
The Washington Post reported the average small business ‡ owner spends more than 40 hours filing out their federal taxes every year, which is equivalent to a full business week. Roughly 25 percent of these owners spend a whopping three weeks on their annual tax filings. According to Bloomberg, 40 percent of small business owners spend at least 80 hours dealing with their federal taxes.
Death (of business) and taxes
Not only is filing taxes an arduous chore, but it can also get pretty expensive. Only 12 percent of small business owners filed their own taxes in 2014, a 15 percent drop from the previous year. The Post reported that hiring someone to help you with your taxes can be costly, as 50 percent of small business owners spent more than $5,000 on accountants and administrative costs in 2013. If that sounds like a lot, around 25 percent spent more than $10,000.
Tim Reynolds, owner of a software company and the vice chair of the National Small Business Association, could only shake his head.
"That money would be better spent hiring a new employee or growing the business," Reynolds said during a congressional hearing on Wednesday.
Taxing small businesses by the numbers
Bloomberg reported IRS.gov had more than 26 million unique visitors in March. That's more than any other site, including healthcare.gov, which bogged down during the days leading up to the March 31 health care enrollment deadline due to a flood of traffic.
But why else is filing taxes a headache for small business owners? Because filing taxes can be a complicated matter, and an entrepreneur can never be too certain there isn't an anvil hanging over their business plan ready to drop.
Case in point, the IRS audited 106,776 ‡ small businesses last year. On average, auditors demanded $5,500 from those businesses in addition to taxes. In all, the IRS dished out $4.5 billion in penalties last year related to payroll taxes.
"While most Americans may think about taxes once a year, entrepreneurs cope with multiple tax issues each day in operating their businesses," Committee Chairman Sam Graves (R-Mo.) said during the hearing. Graves stated that tax complexity and instability leave employers with "little ability to plan with confidence, and less time to grow their companies."
New tax proposals
Reynolds asked the House Small Business Committee to review recent expired tax provisions ‡, including research and development credits and business investment expensing to come to the aid of the nation's small businesses.
"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 corner," Reynolds said.
He added that a consistent model "should be the objective" as lawmakers set their sights on tax reform.
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