Carol Supplee thought she had everything in order.
The owner of a small clothing and jewelry store in Alexandria, Va., Supplee set aside time every day last year to manage and organize her shop’s financial records. So when tax season came around, she thought this year’s filings would be relatively simple and straightforward.
“I thought I had it all together, but in the end, it still took me two full days to double-check it all, put the final touches on and send it off to my [accountant],” said Supplee, who has owned Imagine Artwear for the past two decades. “I kept finding things that weren’t quite right. It’s always tricky.”
Making matters more tricky, Supplee has been trying to make sense of ongoing discrepancies in the past couple of years between her internal sales numbers and those now being reported to the Internal Revenue Service by credit card processors. She says the variation seems to stem from differences in the way they report sales tax and in-store returns.
However, she is still working with the agency to address the discrepancy and determine whether she will have to adjust the way she tracks and reports her sales going forward.
“We started getting letters from the IRS in 2011“ she said. “We’re still trying to get to the bottom of it.”
Supplee is far from alone. More than half of small employers say the administrative burdens and paperwork associated with tax season pose the greatest harm to their businesses, according to a new survey by the National Small Business Association. Forty-seven percent say the actual tax bill hits their companies the hardest.
On average, small-business owners spend more than 40 hours — the equivalent of a full workweek — filing their federal taxes every year. One in four spends at least three full weeks on the annual chore.
There is also the expense of doing that work. Only 12 percent of employers filed their taxes on their own this year, down from 15 percent last year — and hiring help can be pricey. Half spent more than $5,000 on accountants and administrative costs last year. One in four spent more than $10,000.
“That money would be better spent hiring a new employee or growing the business,” Tim Reynolds, owner of a small software company in northern Ohio and vice chair of the National Small Business Association, said during a congressional hearing on Wednesday.
Specifically, it’s the complexity of federal income taxes (most small businesses are structured so that their owners pay the company’s taxes as part of their income taxes) that employers say makes the job the most burdensome administrative task. Payroll taxes actually deal firms their largest financial blow, according to the survey, which drew responses from 1,100 business owners with fewer than 500 employees.
The report comes as policymakers are looking for common ground on a plan to simplify the federal government’s unruly tax system. And while recent departures by top tax writers in the House and Senate have slowed those efforts, others are trying to take up the torch, with several blueprints for comprehensive tax reform floated in the past couple months.
The hearing held by the House Small Business Committee, in which Reynolds testified Wednesday, was meant to explore the recent proposals and how they would affect entrepreneurs and small employers.
“While most Americans may think about taxes once a year, entrepreneurs cope with multiple tax issues each day in operating their businesses,” committee Chairman Sam Graves (R-Mo.) said during the hearing, adding that tax complexity and instability leave employers with “little ability to plan with confidence, and less time to grow their companies.”
In the short term, Congress is considering renewing retroactively a number of recently expired tax provisions, including research and development credits and business investment expensing rules on which many small businesses depend. Reynolds urged lawmakers to vote in favor of those renewals, but going forward, he implored them to stop letting them expire from year-to-year in the first place.
“The ever-growing patchwork of credits, deductions, tax hikes and sunset dates is a roller-coaster ride without the slightest indication of what’s around the corner,” he said, later adding that simplicity and consistency “should be the objective” as lawmakers set their sights on tax reform.