Two things in life are certain: death and taxes. But for small business owners, the large amount of money due at the end of the tax season is not the most intimidating part, it’s the time and money it costs them to calculate that amount.

Although tax liability is and always will be a problem for small businesses, the most problematic area is actually the difficult language of the tax code combined with the mounds of paperwork it takes to deal with it.

73% of small business owners said that the day-to-day operations of their businesses are considerably impacted by federal taxes.

A survey by the National Small Business Association found that 40% of small business owners spent more than 80 hours a year preparing federal taxes and 60% of businesses spend more than 40 hours. That is approximately two workweeks a year. 

With the constant shifting and difficulty associated with the taxes, small business owners have less opportunities to properly plan and grow their businesses.

The time spent on tax preparation is not the only problem business owners face. Nearly 50% of businesses reported they spent more than $5,000 a year on accountant fees, legal fees and internal costs.

The survey found that 83% of small businesses are pass-through entities, such as Limited Liability Companies (LLCs) and S-Corporations. Pass through entities avoid double taxation and allow the businesses to only be taxed at the individual level rather than both the individual and corporate level. Other forms of entities such as C-Corporations however are taxed at a rate of 35%, this is the highest in any developed world.

As a result of the financial burden and difficulty small business owners face during tax season, Max Baucus, Senate Finance Committee Chairman, proposed a plan intended to simplify and stabilize the complicated tax code and decrease the base rate for corporations.

Baucus has said that his plans include a proposal to “streamline and reduce overly burdensome and costly tax administration rules, and to reform cost recovery and accounting.”

A reformed tax system could be what small business owners really need to really reduce the stress and costs associated with filing taxes. Who knows, it may even promote less filing extensions!

Topics: IRS, Small Business