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Taxes Are Big Burden on Small Business

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Monday, 25 Apr 2011 07:53 AM Current | Bio | Archive

The repeal of the expanded reporting requirements for Form 1099 is good news for everyone. Passed as part of the massive healthcare law, it would have required businesses to report any purchases of goods or services of more than $600.

Now it is gone, but the rest of the complex tax code remains as a big problem for small businesses.

The National Association of Business reported in their recent April Survey that taxes "pose a huge time and financial burden for small-business owners." And need I remind you that it is small businesses that are the major job creators in the United States. Bigger business can afford to move operations overseas.

When you think about it, the cost of taxes isn't just the amount you pay to the government. The cost also includes the costs of record keeping and the preparation of tax returns. And the cost of forgoing certain deductions because someone wants to try and play it safe and avoid an audit.

The NASB Survey presents some remarkable information that isn't massaged over by partisan politics and dedicated political activists. Basically, the amount of time and money that small business spends on complying with the federal tax system could be better used in creating more jobs.

Most small businesses are effectively pass-through legal entities. As a result, tax is paid on a personal income level. They don't take such deductions as the home-office deduction, since this would be a "red-flag" to the IRS and they don't want to get involved in a time-consuming and expensive audit process.

According to the survey, the seven biggest concerns for the survival of their business: economic uncertainty (66 percent); decline in customer spending (39 percent); health-insurance costs (35 percent); regulatory burdens (32 percent); federal taxes (29 percent); state and local taxes (18 percent); and lack of capital (17 percent).

Only 13 percent of small businesses do their taxes internally. The rest of the 87 percent pay an external accountant. It is easy to see that these additional costs should also be considered part of the tax burden. But then again, who in the federal government actually does their own tax return?

What do you think is the top administrative tax and financial burden? For small business, it's payroll taxes.

The survey fascinated me in its view that the largest burdens of the federal tax code are the financial cost to business, the lack of consistency and continuously changing regulations, and administration of tax forms (59 percent total). But for the federal government, under the now codified substantial economic effect rule, tax isn’t considered a cost at all. Taxpayers and government have two diametrically opposite views of the same thing.

The NASB members want tax reform. As noted in the survey, the "10,000 pages of laws and regulations that serve as a disadvantage to small business, and are egregiously complex and constantly in flux." I think the same is thought by big business as well.

Everyone wants tax reform except Congress and the Obama administration. What they want is to have a tax system they can constantly manipulate so they can get campaign contributions a bit easier.

The NASB is proposing that tax reform be designed so it is only paid once, stable and predictable, visible to the taxpayer, administratively simple, compliance comprehensible, and "fair in its treatment of all citizens."

The U.S. tax code weighs heavily on small business and has driven the NASB to endorse the Fair Tax which would, in short, replace the current tax monstrosity with a 23 percent national sales tax. This makes a lot of sense since all taxes accumulate in the costs of a product or service to make up the final price to the consumer.

Remember, when they talk about earnings per share they mean earnings per share after tax. Ultimately, all taxes are effectively a sales tax since every purchaser of a product or service pays the price which includes all the accumulation of taxes. It would be a tax system the government could administer easily and taxpayers could comply without having to be burdened with additional costs and uncertainty.

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Kleinfeld
The repeal of the expanded reporting requirements for Form 1099 is good news for everyone. Passed as part of the massive healthcare law, it would have required businesses to report any purchases of goods or services of more than $600. Now it is gone, but the rest of the...
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2011-53-25
Monday, 25 Apr 2011 07:53 AM
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