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Small Businesses Sacrifice More Than A Week Each Year For Tax Preparation

Written by Ken Gaebler
Published: 4/23/2014

Complex tax filing requirements are seriously impacting small business productivity--but there are major players invested in make sure the tax system doesn't get any simpler.

Taxes were due last week, which means this week is a week of recovery for the nation's business owners.

Tax Impact on Business Owners

Small business owners have long complained about the complex and byzantine workings of the U.S. tax system. In fact, the current system is so mysterious, that former Secretary of Defense Donald Rumsfeld tweeted an image of the annual letter he sends to the IRS, informing the agency that "I know that I do not know whether or not my returns are accurate."

New evidence shows the serious toll that tax requirements are imposing on small companies. But at the same time, major business and government interests have aligned against a simplification of the process.

Tax preparation is an annual ritual for small business owners. According to a recent Washington Post report, small business owners lose more than a week each year (on average) to tax preparation and paperwork. A quarter of small businesses spend more than three weeks a year trying to meet IRS requirements.

Additionally, the complexity of the tax system means that just 12 percent of owners filed their tax returns without assistance, down from 15 percent in 2013. Half of all small business owners spend more than $5,000 on tax preparations assistance and one in four spend more than $10,000.

It's clear that most small business owners are spending too much time and resources on filing for tax time, and would welcome initiatives to simplify the current process. But although a simpler method may exist, don't expect to see it rolled out anytime soon.

Reports in multiple media outlets have described a long-standing proposal to implement return-free filing, a system that would enable many taxpayers to access a free, simplified income tax process. However, lobbyists representing Intuit (maker of the TurboTax solution) and other interests have campaigned heavily against the proposal for decades, since it would disrupt the market for tax preparation products and services.

Although it's unclear whether or not small businesses would qualify for return-free filing, it's likely that any attempts to simplify the current tax preparation and reporting process would meet similar resistance from lobbyists representing interests that are invested in the current system.

So for now, it looks like small businesses have no choice but to look for better and more efficient ways -- including good recordkeeping and tax planning -- to manage the annual burden of tax preparation and paperwork.

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