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Grow Your Business Finances

Small Business Owners Labor Under Weight of Tax Law

Small business taxes are too complicated. That’s the finding of a National Small Business Association (NSBA) survey released today. The 2011 Small Business Taxation Survey found that the complexities of federal taxes  — and tax code inconsistencies — are depleting small businesses of their time and money.

"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," said 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."

In fact, 50 percent of those surveyed said they pay more than $5,000 to have their taxes prepared .

Payroll taxes were ranked the most burdensome taxes — both financially and administratively — for small businesses. Only 44 percent of small businesses reported using an external payroll company, and even those businesses that do use an outside company report dedicating a significant amount of time to dealing with payroll taxes.

The majority (63 percent) of small business owners who handle payroll internally said the new W-2 reporting requirement (beginning in 2012 that will require employers to report health care spending) will have a negative impact on their business.

IRS audits of small businesses 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," said 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 related to the Fair Tax.