And I thought the three full days I spent preparing my self-employed tax return last week was painful. Turns out most Yahoo! Small Business readers probably have it even worse.
A survey released today by the National Small Business Association indicates that a majority (60 percent) of small businesses spend more than 40 hours per year grappling with the complex and inconsistent federal tax code, and 40 percent spend more than 80 hours.
In addition, the organization's 2014 Small Business Taxation Survey revealed that 86 percent of owners must pay an external tax practitioner or accountant to handle their taxes; nearly a third spend more than $10,000 annually on federal tax preparation; and nearly half spend more than $5,000 in the form of accountant fees, internal costs, and legal fees.
As NSBA First Vice Chair Tim Reynolds testified yesterday to the House Committee on Small Business, "This is before they even pay their actual taxes!"
The NSBA survey release was timed to coincide with that hearing on tax reform where Reynolds told committee members about "the biggest tax problems facing America’s small businesses." He said that "simplification of the most complex provisions of the Code may help to significantly reduce the burden on individual taxpayers and small businesses," and he urged members to address two paramount issues: "the generally high marginal rates of taxation on income," and "the almost impossible task of compliance with all the rules and regulations."
NSBA President and CEO Todd McCracken said in a statement that the survey reveals that the administrative burden of federal taxes is a bigger concern for small business owners than is the financial burden of paying taxes. “Our tax system punishes work, investment, risk taking, and entrepreneurship and is unquestionably broken,” McCracken said.
Because a significant majority (83 percent) of small firms are pass-through entities, they pay taxes on their business income at the individual level. They ranked income taxes and payroll taxes as the top two most burdensome taxes both financially and administratively. NSBA Chair Jeff Van Winkle said of his fellow small business owners: "It is no wonder that a clear majority support broad tax reform that will ease complexity by reducing both corporate and individual tax rates, coupled with reduced deductions."
NSBA supports the Fair Tax (H.R. 25)—a national 23 percent tax on the end point-of-sale for all goods that would replace all current individual and corporate tax schemes. Reynolds told the House Committee that NSBA believes the law would "dramatically reduce the tax bias against work, savings and investment, and would substantially reduce complexity and compliance costs." He said more than half of small firms surveyed by NSBA expressed support for the Fair Tax. The survey was conducted online last month among 1,100 small business owners.