Why Small Business Owners Feel High Tax Burden

By Kate Lister on 21 April 2011 (Updated 9 May 2011) 0 comments
Photo: contour99

Have you seen the proposed new tax form?

  • Line 1 = Enter income from all sources
  • Line 2 = Send it in

This time of year, you’re probably not laughing.

A friend called in tears last week. She’d just spent a week doing tax prep work for her annual meeting with her accountant — enough to make any grown person cry. She was just about to print the final reports for her morning meeting when she noticed the puddle of ink under the printer. It was the second printer to fail in a week, the result of a leaky store-brand ink cartridge.

Lots of people are cranky this time of year thanks to our 10,000+ page tax code. A survey by the National Federation of Business (NFIB), the nation’s leading small business association, found that four of its members' top ten concerns were tax-related. Health insurance topped the list.

Another survey, just-released by the National Small Business Association (NSBA), found that more than a third of business owners (38%) spend two weeks a year dealing with federal taxes. Because of the complexity of the tax code, and fear of audit, almost nine in ten pay an outsider to prepare their returns.

The small business tax burden, both financial and administrative is overwhelming, and it’s not likely to improve any time soon. Just last month, the SBA Office of Advocacy determined that the study behind the IRS’s focus on small businesses as the nation's biggest tax cheats, was significantly flawed. And, at a time when more people are trying to earn a freelance living than at any other period in modern history — often the result of being laid off — Uncle Sam is targeting the companies that hire them, claiming they’re employees, not contractors.

Happily, one particularly egregious example of this tax-happy trend looks like it’s headed for repeal. Buried in the 2,400-page Patient Protection and Affordable Care Act that passed last year, was an expanded 1099 reporting requirement would have buried small businesses in unnecessary paperwork.

Right now businesses are required to send 1099’s to any unincorporated service provider they pay more than $600 a year. The new healthcare law would have added corporations to the 1099 hit list and it would have added payments for goods and property to the burden. That $699 iPad, for example, would mean a 1099 to Apple. For a typical small business that mails an average of sixteen year-end 1099s, the new law would increase that number eleven-fold (NSBA estimate).

What the heck is a change to 1099 reporting requirements doing in a healthcare bill anyway? Fortunately, that’s a question that NFIB, NSBA and others asked too. Thanks to their efforts, both houses of congress have called for a repeal of that part of the bill. The final nail in the coffin, the President’s signature, is expected shortly.

Small business may have won this recent battle, but with Federal, state, and local governments desperate for money, the war is far from over.

More than ever, small business owners need to stay informed about regulations, taxes, and other laws that could affect them; and they need to make their voice heard. Here’s how to do both:

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