Small Businesses Lose 1 Full Workweek to Tax Prep

While paying taxes is never fun, small business owners say filing is an even bigger headache.

According to the National Small Business Association’s 2014 Small Business Taxation Survey, 53% of business owners say the administrative burden related to tax prep is the biggest challenge, while 47% say it’s paying the bill to Uncle Sam.

NSBA spokeswoman Molly Day said it’s astounding how much time business owners spend on dealing with complex taxes.

“The majority [nearly 60%] of business owners spend more than 40 hours on federal taxes alone. That’s an entire workweek, and it’s significant especially given that 86% outsource their federal taxes to an accountant,” said Day. What’s worse, 40% are spending at least two full workweeks on their federal taxes.

Day said the complexity has driven more businesses to utilize professional help for tax prep. The latest report found only 12% of business owners do their taxes internally, down from 15% the year earlier.

House Hearing on Tax Complexity

These findings served as the focus of a House Small Business Committee hearing Wednesday on the complexity of the tax code.

“We know that small businesses face unique tax challenges, because research [has] shown that it is more costly and time consuming for small firms to comply with the tax code. But while most Americans may think about taxes once a year, entrepreneurs cope with multiple tax issues each day in operating their businesses,” said House Small Business Committee Chairman Sam Graves (R-MO) in his opening statement.

NSBA member Tim Reynolds, the president of software firm Tribune, Inc., spoke at the hearing about the financial challenges small businesses face given today’s tax landscape.

Reynolds pointed out that small firms with fewer than 20 employees pay $1,584 per employee in compliance costs. Meanwhile, firms with more than 500 workers pay about a third of that cost. He also referenced the NSBA report, which found that almost half of small firms pay more than $5,000 on tax administration – not including their tax bill.

“In my company’s case, the bill for preparing the company’s taxes and my personal taxes as the owner of a Sub S corporation was $13,650,” said Reynolds. Tribune, Inc. has 38 employees.

Day told FOXBusiness.com she hopes the hearing will help Congress realize the importance of simplifying the tax code.

“Our hope is they look both near-term and long-term,” said Day. She said the constant process of extending tax credits – a short-term fix often intended to help small business owners – generally just makes taxes more confusing.

“We want [Congress] to look more holistically … sunset-ing or one-year extensions doesn’t do anything for small businesses, because the biggest problem was complexity,” said Day.