Tax Strategies & Credits

The Impact of Tax Complexity on Small Businesses

by
Mark Glazewski
on
10/23/2016
The Impact of Tax Complexity on Small Businesses

Much has been written about tax reform during our election year, although most of the focus has been on large corporations and tax inversions. According to the SBA, there are 28 million small businesses in America that account for 54% of all U.S. sales. For a group that makes up such a large part of our economy, it is shocking more assistance is not provided to make things easier for the small business owner.

Here are some areas that regulations and complexity add to the entrepreneurs’ stress level.

Tax Compliance and Cash Flow

Tax compliance costs are 67% higher for small businesses than big businesses. With the growing number of tax provisions, small businesses must now spend significant resources on compliance that could otherwise be utilized for growing their companies. Big businesses can respond to tax laws with a variety of strategies, such as outsourcing, layoffs and downsizing, but small business owners cannot. Small businesses often have close ties to employees and lack this structural flexibility.

Taxes also interfere with cash flow for small businesses. They operate daily on cash flow to pay for utilities, benefits and employee wages. And local, state and federal tax payments compound the cash flow problem for small businesses. Plus, payroll taxes must be paid monthly even when there are periods of thin profit margins. This just eats into cash flow.

The Regulatory Environment: It’s Complex

Most small business owners have some level of difficulty understanding the government regulations and law. It takes substantial time for owners to learn, navigate and manage the government regulations and laws. In addition, the stacking of regulations from sub-federal to federal levels just enhances the challenge.

The need for a simpler way of taxing small business has never been more imperative. Business owners have to spend too much time figuring out the tax regulations and can end up giving too much to Uncle Sam. The fact is that 85% of small businesses file and pay taxes as individuals. Washington needs to get serious about helping small businesses and should not leave Main Street behind with its tax reform.

Congress just loves to brag about how it has helped small businesses in speeches and press conferences. However, the reality is really in the details. For example, the Affordable Care Act’s tax credit for small businesses that provides health care to employees sounds just wonderful, but here’s the real deal.

  1. First, this tax credit is only available for small businesses with “10 or fewer employees with an annual wage below $25,000."
  2. Second, the small business owner must provide 50 percent of the health care for employees.
  3. Third, this credit can only be taken for two years. This bragged-about tax credit is simply not worth it for small businesses. The caps and salaries simply do not reflect the economic reality of the vast amount of small businesses in the country.

Without a doubt, there is much to be done to make the tax code simpler and more fair for America’s small business owners. The need for tax reform for small businesses is just as important as for the Fortune 500 companies. Because of these challenges, it is important to surround your small business with advisors that get the complexity and can take much of this burden off your shoulders.

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Mark Glazewski

Mark Glazewski

Mark Glazewski, EA is a tax preparer based in Peekskill, NY. Mark has over 25 years of experience working with small business owners providing them with their accounting, bookkeeping and tax solutions. His true passion is working with start-up businesses. He received his BA in Finance at Mercy College and is a Certified QuickBooks Pro Advisor in both Desktop and Online versions.

Mark Glazewski, EA
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New York

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