The National Small Business Association (NSBA) released the 2011 Small Business Taxation Survey. This survey provides detailed insight on how America’s small-business community is being impacted by federal taxes. In short: complexity and inconsistency with the tax code are depleting small businesses of their time and money merely so they can handle the administration of federal taxes.
“One in three small-business owners spends two full work weeks every year dealing with federal taxes, and the overwhelming majority (87 percent) are forced to pay an outside accountant or other tax return preparer,” stated Larry Nannis, CPA, NSBA chair and shareholder at Levine, Katz, Nannis + Solomon, P.C. “The federal tax code is a massive resource drain for small businesses.”
Payroll taxes were ranked the most burdensome taxes—both financially and administratively—for small businesses. Only 44 percent of small businesses report using an external payroll company, and even those that do report a significant amount of time dedicated to dealing with payroll taxes.
Given the relatively high number of small businesses that handle payroll internally, it’s no wonder that the majority (63 percent) said the new W2 reporting requirement, beginning in 2012 that will require employers to report 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 misappropriated an undue responsibility of the tax gap upon the small-business community. Illustrating this growing fear and mistrust small-business owners have for the IRS, less than half (47 percent) of eligible small-business owners utilize 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,” stated NSBA President Todd McCracken “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 income tax rates and eliminate certain deductions, as well as sweeping reform in-line with the Fair Tax.