When it comes to paying, for many small business owners, it’s not just the out-of-pocket costs that are a burden. The paperwork leading up to April 15 also exacts a toll. More than half – 55 percent – of the 1,500 small business owners recently surveyed by the National Small Business Administration (NSBA) say that the most significant challenge posed by the tax code is its administrative burden. That tops the 45 percent who rank the financial burden first.
The survey’s results likely reflect the fact that 57 percent of respondents spend more than 40 hours each year working on federal taxes. On top of that, more than three-quarters spend at least $1,000 annually on tax administration, including fees for accountants and other professionals. Nearly all respondents – 84 percent – use a tax professional to prepare their taxes. Two in five respondents said federal taxes have a significant impact on the day-to-day operations of their business.
The complexity, along with confusion over the fiscal cliff brouhaha, appears to be affecting businesses’ use of tax deductions and credits. As an example, while 36 percent of respondents took advantage of Section 179 deductions for the cost of machinery, vehicles or other property last year, a slightly smaller percentage – 30 percent – did this year. Similarly, the percentage taking the bonus depreciation deduction dropped from 25 percent in 2012 to 20 percent in 2013. According to the report, “Many NSBA members have commented that the complexity, continually changing and temporary nature of many credits and deductions are diminishing their importance.” (At the same time, 58 percent said that tax credits and deductions have a moderate or significant impact on decisions about their companies and/or employees.)
Along with income taxes, employment taxes also can get complicated. About 40 percent of respondents use an outside payroll service, with about one-third paying at least $500 each month. At the same time, the majority of those using a payroll service spend at least three hours each month administering payroll taxes.
When it comes to state sales taxes, business owners are split as to whether the tax should be collected from companies located outside the state that had only online sales. Exactly half say these companies should not be subject to a state’s sales tax. Forty percent say the companies should be subject to the tax, although some support exemptions for companies whose revenue fall below a certain threshold. Sixteen percent aren’t sure.
The most popular proposed tax reform, supported by two-thirds of respondents, would be to reduce both corporate and individual tax rates, as well as business and individual deductions. Interestingly, nearly half – 47 percent – support a shift to what’s become known as a “fair tax.” This would eliminate income and corporate tax rates in favor of a tax at the point of sale for all goods.
The most popular proposals aimed at reducing the budget deficit are implementing tax reform, reforming and reducing entitlement spending, and implementing across-the-board budget cuts for federal agencies.
“Our tax system punishes work, investment, risk taking and entrepreneurship and is unquestionably broken,” says Todd McCracken, president and CEO of the NSBA.