Taxes are due today and according to a new report, small businesses take the brunt of the burden and are spending billions of hours on federal tax compliance. Researchers from IBM Global Business Services, IRS NHQ Office Research and Quantria Strategies have released a report with some surprising small business news on how much time taxes actually take.
According to the survey, small businesses, which the group defined as being C Corporation, S Corporation and partnership with no more than $10 million in assets, spend between 1.7 billion to 1.8 billion total hours in order to comply with federal tax regulations. Broken down, that equates to each of the 7,000 businesses surveyed devoting 236 to 255 hours to compliance, with businesses citing record-keeping as the top burden.
It was found that businesses spent the most money on securing assistance from tax professionals and accountants and the largest time burden was for keeping records. It was also discovered that it costs much more on a per employee basis for smaller businesses to adhere to federal tax regulations. The study combined the cost of both money and time spent on adhering to tax rules, estimating the cost of time at $45.50 per hour. When the study combined the time and money spent on adhering to the tax rules, they found steep economies of scale in tax compliance. Businesses with one to five employees averaged $7,274 per employee to adhere to federal tax regulations, while businesses with more than 50 employees averaged only $296.50 per worker.
In a related study, the National Small Business Association released the 2011 Small Business Taxation Survey last week showing how complexity and inconsistency with the tax code are depleting small businesses of their time and money 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."
For small businesses, payroll taxes were ranked the most burdensome taxes, both financially and administratively. Only 44 percent of small businesses report using an external payroll company. With a relatively high number of small businesses handling payroll internally, 63 percent said the new W2 reporting requirement, beginning in 2010 that will require employees to report health care spending, will have a negative impact on their business.
"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."
Sources Used:
“The Cost of Small Business Tax Compliance.” Business Insider. April 18, 2011.
“Small Businesses Spend Billions Of Hours Total On Tax Compliance.” Gaebler.com. April 18, 2011.
“NSBA Releases New Survey on Small Business and Taxes.” PRNewswire. April 11, 2011.