Tax day is a reminder that small businesses face a growing and disproportionate tax burden. Business owners still face frequent changes and additional complexity, and this year is no exception. Businesses have to come to grips both with tax changes enacted under the fiscal cliff deal and the implementation of the Affordable Care Act. And next year it becomes even more complicated. Here is a list of facts and issues illustrating how the tax burden and complexity has increased this year and stands to grow even worse in 2015.
1. Taxes are a leading concern for small businesses
- According to the April 2014 Small Business Economic Trends report, 21 percent of small business cited taxes as the single most important problem facing them today.
- In a survey of small businesses ranking 75 issues of concern for small businesses, federal and state tax issues occupy 5 of the top 10 items on the list.
- In the same survey, the cost of health insurance was identified as the top issue.
- Because 75 percent of small-business owners are organized as pass-through entities, they are directly impacted by changes in individual tax rate.
2. Small-business owners face new tax increases in 2014
- The top individual income tax bracket
increased to 39.6 percent from 35 percent for business owners with income over
$400,000 for single filers and $450,000 for joint filers.
- Taxpayers lose the value of itemized
deductions and the personal exemptions starting at $200,000.
- The Affordable Care Act imposes a 3.8
percent tax on net investment income, which is expected to raise $10 billion in
- The Health Insurance Tax targeting small businesses kicks in, which applies to all individual health insurance plans and nearly all small business plans.
3. Small-business owners will ALSO face new tax burdens in 2015
- Important business tax provisions, like expensing under section 179, will be unavailable if Congress doesn’t act to extend them.
- Enforcement of the individual mandate begins to be assessed. The penalty can amount to one percent of household income.
4. Tax complexity has also increased in 2014
- Small business owners must comply with new IRS regulations that change how newly acquired property and parts are calculated.
- Business owners who accept payment with credit and merchant card are required to track the total amount of these transactions and report them to the IRS.
- It is no wonder that NFIB members have effectively surrendered to the code's complexity: 91% hire a professional tax-preparer to do their taxes.
5. The Affordable Care Act adds more complexity in 2015
- Large employers are required to file information returns to the IRS about the health insurance coverage provided to each full-time employee – signaling a brand new tax season focused on reporting health care information to the IRS.
- All employers that provide “minimum essential health coverage” must also report this coverage to the IRS.
- The Small Business Health Care Tax Credit changes again. It increases to 50% of premiums paid, but small business owners can only purchase plans from the Small Business Health Options Program (SHOP) Marketplace.
6. Tax compliance costs are a drain on small businesses
- Small businesses spend on average $74 per hour to comply with the federal tax code – the most expensive paperwork burden imposed on small businesses by the federal government.
- Research by the SBA Office of Advocacy estimates it costs small businesses 206 percent more to comply with the tax code than it costs their larger counterparts.
- Small businesses spend between 1.7 billion and 1.8 billion hours on tax compliance with a total estimated cost of between $15 billion and $16 billion annually.
 Small Business Problems & Priorities, NFIB Research Foundation, Washington, DC, series.
 Paperwork and Recordkeeping, NIFB Research Foundation, 2003.