The Economy

Tax Compliance Burden Weighs on Small-business Owners

One-third of small-business owners are spending more than 80 hours a year on complying with their tax obligations.
Matthew HellerApril 10, 2015

Two-thirds of U.S. small-business owners say federal taxes have a significant-to-moderate impact on their day-to-day operations and one-third are spending more than 80 hours a year on complying with their tax obligations, according to the National Small Business Association.

With the tax filing deadline looming, NSBA said in its 2015 Small Business Taxation Survey that “small-business owners across the country are united in the stress and frustration associated with the countless hours and mountains of paperwork required just to file their taxes.”

“It’s no wonder that 40 percent of small firms file their federal taxes under extension,” according to the survey of more than 675 small-business owners, which was conducted online from March 13 to March 24. (The respondents include both NSBA members, which tend to be owners of older, more established small businesses, as well as non-members of the association.)

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NSBA found that more than one-quarter of survey respondents spend more than $10,000 annually on compliance and 8% indicated they need to pay an outside tax practitioner or accountant to handle their taxes.

Frustration with all the paperwork seems to be increasing. In ranking the most significant challenge to their business posed by federal taxes, 59% of respondents picked administrative burdens, up from 53% just one year ago.

Forty-two percent said financial burdens are the primary headache associated with the federal tax code.

The top four deductions used by small firms are Section 179 expensing, the home mortgage interest deduction, the home office deduction, and bonus depreciation. When asked what deductions are most important to small-business growth, the majority said allowing the full deduction for health insurance costs — something not available to self-employed individuals.

The only broad reform proposal that received the majority of small businesses’ support was reducing both corporate and individual tax rates coupled with cuts in both business and individual deductions. Most small firms are pass-through entities and therefore pay their business taxes at the individual income level.

“As NSBA has been warning for quite some time, addressing just one piece of the puzzle to effectively reduce the deficit — such as corporate tax reform alone — without all pieces will lead to even greater complexity and a massive tipping of the scales in favor of the nation’s largest companies at the expense of small businesses,” the report says.