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Small Businesses Overwhelmed by Tax Reporting Obligations

smallbizobligationsSmall businesses are feeling overwhelmed with the reporting obligations imposed on them every year when dealing with federal taxes.  A recent survey conducted by the National Small Business Association found that one-third of small-business owners spend two full work weeks every year dealing with federal taxes, and 87 percent need to pay an outside accountant or other tax return preparer to do their taxes.


Tax Reporting- Drain on Time and Money


The survey also found that, for the most part, the complexity and inconsistency within the Tax Code are draining small businesses of their time and money just in order for them to deal with the administration of federal taxes.


Payroll taxes ranked as the most difficult taxes to deal with for small businesses, both administratively and financially.  Even though only 44 percent of small businesses use an external payroll company, those that used an outside payroll company still spent a large amount of time dealing with payroll taxes.  The amount of time spent will soon increase even further when the new W-2 reporting requirement takes effect at the beginning of 2012.  This new requirement has employers now also reporting their health care spending.


IRS Audits, Funding for Enforcement Activities Continue to Rise


To make matters worse, the IRS continues to place excessive obligations for the tax gap on small-businesses.  Less that 47 percent of eligible small-business owners are claiming the home office deduction they are entitled to due to concerns it will “red-flag” their tax return for an IRS audit.


NSBA president Todd McCracken stated that “The time for a serious debate on broad tax reform is now.  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.”


Since roughly 83 percent of small businesses are pass-through entities and pay business taxes at the individual income level, the majority favors proposals reducing corporate and individual income tax rates and eliminating certain deductions, as well as comprehensive changes aimed at simplifying the Tax Code.

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