2012 small business taxation survey · 2018-01-11 · year, including our semiannual economic...
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Small Business Taxation Survey20
12
With just days until the April 17 income tax deadline, federal taxes are weighing heavily on America’s small-business community. Federal taxes are routinely ranked among the top issues facing small businesses and pose a huge financial and administrative burden for small-business owners. NSBA has surveyed its membership on a broad array of federal taxes and tax policies, and is pleased to provide the results of that survey this document, the NSBA 2012 Small Business Taxation Survey.
Celebrating its 75th anniversary, NSBA has been the nation’s leading small-business advocate. As part of NSBA’s mission to address the needs and represent the concerns of the small-business community, we conduct a series of targeted surveys and quick polls throughout the year, including our semiannual Economic Reports. The 2012 Small Business Taxation Survey is a follow-up of a similar survey in 2011 and will provide valuable trending data.
Small business consistently ranks reducing the tax burden among their top issues for Congress and the administration to address. Although the actual out-of-pocket cost is a huge issue, the sheer complexity of the tax code, along with the mountains of paperwork that necessitates, is actually a more significant problem for America’s small businesses. In 2012, 64 percent of small businesses reported they spend more than 40 hours per year dealing with federal taxes, up from 57 percent just one year ago. Forty-five percent report spending more than 80 hours per year—two full weeks—just on dealing with federal taxes.
Underscoring the growing complexity with the U.S. tax code is the fact that 85 percent of small-business owners must pay an external tax practitioner or accountant to handle their taxes. Furthermore, when asked to rate the most significant challenge posed by the federal tax code to their business, the majority (56 percent) picked administrative burdens while 44 percent said financial burdens.
A likely result of ongoing economic difficulties, fewer companies today are using payroll service companies, down from 44 percent to 41 percent. However, those that do are paying more: —36 percent of small businesses spend in excess of $500 per month on payroll services, up from 28 percent just a year ago.
When it comes to public policy, the clear majority of small businesses (73 percent) support broad tax reform that will reduce both corporate and individual tax rates coupled with reduced deductions. Given that the overwhelming majority of small businesses (83 percent, according to existing NSBA data) pay taxes on their business at the personal income level, or are so-called “pass-through” entities, addressing just one piece of the puzzle—such as corporate tax reform—will lead to even greater complexity and a massive tipping of the scales in favor of the nation’s largest companies at the expense of small businesses.
Touching again on the ever-changing maze of tax credits and laws, small businesses expressed the greatest concern over a pending increase in the marginal income tax rates; massive increases in the estate tax; prohibiting self-employed from fully deducting the cost of their health insurance; and expiration of the expanded Section 179 expensing and bonus depreciation.
We hope this survey provides timely and useful information on how taxes are impacting America’s small-business community.
Sincerely,
Chris Holman, Todd O. McCrackenNSBA Chair NSBA President and CEOMichigan Business Network
FOREWORD
NSBA Chair Chris Holman
NSBA President Todd McCracken
3
DE
MO
GR
AP
HIC
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It is worth noting that the businesses surveyed represent a slightly larger proportion of c-corps than what is found in the at-large small-business community where approximately 17 are c-corps. Additionally, employee size and revenues are slightly larger among the survey sample than what is generally found among the at-large small-business community. Finally, NSBA members represent a slightly higher proportion of manufacturers and professional services.
FIGURE 1 - BUSINESS STRUCTURE
FIGURE 4 - SALES/REVENUES FIGURE 5 - PAYROLL
FIGURE 2 - NUMBER OF EMPLOYEES
FIGURE 3 - INDUSTRY
Which of the following best describes the structure of your business?
What were your gross sales or revenues for your most recent fiscal year?
What was your total payroll for the most recent fiscal year?
How many total full-time personnel are currently employed by your business?
Which of the following best describes the industry or sector in which your business operates?
ManufacturingProfessional services
ConstructionRetail
DistributionTransportation
InsuranceReal estate
SoftwareIT/Telecom
FinanceFabricated Products
Health CareFood Service
Printing and PublishingBiotech
Chemicals
23%17%
13%12%
8%4%4%4%
3%3%
2%2%2%
1%1%1%
0%
Corporation
Less than $100,000 Less than $100,000
1 to 40
S-Corp
$100,000 - $250,000 $100,000 - $250,000
5 to 9Partnership
$250,000 - $500,000 $250,000 - $500,000
10 to 19Sole Proprietorship
$500,001 - $1 Million $500,001 - $1 Million
20-99LLC
$1 - $5 Million $1 - $5 Million$5 - $25 Million $5 - $25 Million$25 - $75 Million $25 - $75 MillionMore than $75 Million More than $75 Million
100-49932%
42%
12%
13%1%7%
28%
15%18%
27%
5%
12%
9%
8%
12%33%
20%
5%
1%
23%
25%18%
25%
5%
4
Complexity of the tax code continues to pose significant challenges to small business. The tax burden on America’s small-business owners is growing with 64 percent reporting they spend more than 40 hours per year dealing with federal taxes, up from 57 percent just one year ago. The financial burden also is growing with a slight increase in the number of small businesses spending in excess of $5,000 annually on the administration (i.e.: accountant fees or internal costs) of federal taxes alone.
The time and money spent, coupled with the fact 85 percent of small-business owners must pay an external tax practitioner or accountant to handle their taxes ought to be a clear signal that the tax code is far too complex.
When asked to rate the most significant challenge to their business, the majority (56 percent) picked administrative burdens while 44 percent said financial burdens. These administrative burdens are usurping more and more of the small-business owner’s time and directly correlates to increased spending simply to pay ones taxes.
Interestingly, the financial and administrative burden small-businesses feel is nearly identical for various taxes. When asked to rate a series of 11 common small-business taxes both in terms of financial and administrative burden, payroll taxes, state and local taxes, property taxes, sales tax and income taxes rounded out the top five.
FIGURE 6 - TIME SPENT ON FEDERAL TAXES
FIGURE 7 - MONEY SPENT ON FEDERAL TAXES
Approximately how much time do you spend each year dealing with federal taxes?, (i.e. calculating payroll, self-employment or any other business-related tax, filing reports, working with your accountant, estate planning, etc)
Approximately how much money do you spend each year on the administration of federal taxes not including your owed taxes? (i.e.: accountant fees, internal costs for administration of taxes, legal fees, etc…)
Total spending more than $5,000
2011 2010
53% 50%
SM
AL
L-BU
SIN
ES
S T
AX
BU
RD
ENNearly one in three small-business owners spend more than
three weeks dealing with federal taxes—up five percentage points from just one year ago.”- Chris Holman, NSBA Chair and CEO of Michigan Business Network.com and President of The Greater Lansing Business Monthly
““
64% 57%Total number of
businesses spending more than 40 hours
(2011)
Total number of businesses spending more than 40 hours
(2010)
vs.1 to 10 hours11 to 20 hours21 to 40 hours41 to 80 hours81 to 120 hours120 hours +
10%
10%
17%
19%18%
28%
Less than $500$501 to $1,000$1,001 to $5,000$5,001 to $10,000$10,001 to $20,000$20,001 to $40,000More than $40,000
9%
11%
27%
18%
13%
12%
10%
vs.
5
SM
AL
L-BU
SIN
ES
S T
AX
BU
RD
EN
FIGURE 9 - ADMINISTRATIVE BURDEN
FIGURE 10 - FINANCIAL BURDEN
FIGURE 11 - LARGEST TAX BURDEN
FIGURE 12 - CUMULATIVE BURDEN BY TYPE IMPOSED ON SMALL BUSINESS BY THE FEDERAL TAX CODE
Please rank, in order of their administrative burden on you and your business, the following taxes.
Please rank, in order of their financial burden on you and your business, the following taxes.
What is the largest burden posed to you by the federal tax code?
1. Income Taxes (Both C-Corps and Pass-Through Entities)2. Payroll taxes3. Sales tax4. State and local tax compliance5. Property taxes6. Alternative Minimum Tax
7. Capital gains taxes8. Import taxes (I import)9. Excise taxes10. Estate tax11. International taxes (I export)
1. Payroll taxes2. Income Taxes (Both C-Corps and Pass-Through Entities)3. Property taxes4. State and local tax compliance5. Sales tax6. Alternative Minimum Tax
7. Estate tax8. Capital gains taxes9. Excise taxes10. Import taxes (I import)11. International taxes (I export)
Financial cost to my business
The lack of consistency/continuously changing regulations
Administration of tax forms and the time it takes
Complexity and the concern over getting audited
Amount of paperwork that must be completed
Inequity within the Code
ADMINISTRATIVE BURDEN FINANCIAL BURDEN
FIGURE 8 - HOW TAXES ARE PREPARED
How do you prepare your taxes?
Tax practitioner/accountant
Tax software on computer
Personally calculate taxes and fill out the paper forms
Electronic Filing
Staff member calculates taxes and fills out the paper forms
85%5%
4%2%
3%
44%
15%
13%
56% 44%
11%
10%
7%
66
Significantly ModeratelyA Little Not at all
Significant impact Small impact Moderate impact No impact
TA
X D
ED
UC
TIO
NS
AN
D C
RE
DIT
S
FIGURE 13 -DEDUCTIONS & CREDITS
Which of the following deductions or credits do you take advantage of? (Check all that apply)
Sec. 179 expensing
Home mortgage interest deduction
Bonus depreciation
Home office deduction
R&D credit
Energy efficiency credits
Start-up costs deduction
There was a decrease in the take-up rate of nearly every common small-
business deduction between 2011 and 2012, likely due to actual sunsets or
confusion over last-minute changes to various sunset dates. Although tax law
and credits or deductions do have a significant impact on a notable number
of businesses, many NSBA members have commented that the complexity,
continually changing and temporary nature of many credits and deductions
have diminished their importance.
36%47%
54%
25%25%
14%18%
12%
11%
3%
11%
10%
4%
36%
FIGURE 14 -IMPACT OF FEDERAL TAXES ON OPERATIONS FIGURE 15 -INFLUENCE OF TAX CREDITS & DEDUCTIONS
How much of an impact would you say federal taxes have on the day-to-day operation of your business?
How much do tax credits and/or deductions influence your decisions about your company and/or employees?
6%
25%
29%
32%
15%15%
41%
38%
2011 2010
7
AC
CO
UN
TIN
G &
INV
EN
TO
RY
FIGURE 17 - BUSINESS INVENTORY
FIGURE 16 - ACCOUNTING METHOD
FIGURE 18 - DETERMINING INVENTORY COSTS
Do you have inventory for your business?
Which method of accounting does your business utilize?
Among those that do have inventory, methods is used to determine inventory cost.
Accrual
Yes
Cash
No
62%
57%
38%
43%
First-in, First-out (FIFO)
Specific Identification Method
Last-in, First-out (LIFO)
Not Sure
32%
30%
21%
17%
8
FIGURE 19 - SELF EMPLOYMENT TAX DEDUCTION
FIGURE 23 - IMPACT OF W2 REQUIREMENT
FIGURE 20 - AVERAGE SAVINGS FROM SELF-EMPLOYMENT TAX FIGURE 21 - SPENDING SAVINGS
FIGURE 22 - AWARENESS OF W2 REQUIREMENT
Did you utilize the one-year provision enabling self-employed individuals to fully deduct the cost of their health insurance for 2010, thereby foregoing the self-employment taxes that are otherwise assessed on health insurance premiums?
How do you expect this new requirement to impact your business?
Yes No - I do pay self-employment taxes
No - I don’t pay self-employment taxes
I wasn’t aware of it
Not Sure
Approximately how much money did the 2010 exemption of self-employment taxes on the cost of your health insurance save your company?
What did you do or plan to do with this extra money?
Are you aware of the new requirement which goes into effect in 2012 that all health insurance spendingby your company be reported on employees’ W2 forms?
HE
AL
TH
INS
UR
AN
CE
AN
D T
AX
ES
25%
$3,130
13% 38% 06% 19%
Although it appears there still is a significant number of small
businesses who are not aware of the 2012 requirement
that that all health insurance spending must be reported
on employees’ W2 forms, one in five said the requirement
will consume a significant amount of staff time or result in a
significant increase in their payroll provider’s fees.
Yes
No60%40%
It will cost me or my staff a significant amount of time
14%
It will cost me or my staff a moderate amount of time
31%
It will increase my payroll provider’s cost significantly
6%
It will increase my payroll provider’s cost somewhat
20%
No Impact 15%Not sure 23%
Save or reinvest it back into the company 48%
Other 20%
Buy new equipment 13%
Reduce employees’ portion of the health insurance plan
8%
Grow inventory 8%
Increase advertising 7%
Reduce my (the employer) share of our health insurance plan
5%
Hire more employees 2%
9
FIGURE 26 - EXCESS OF $500 SPENT ON PAYROLL FIGURE 27 - TIME SPENT ON HANDLING PAYROLL INTERNALLY
FIGURE 28 - TIME SPENT ON ADMINISTRATION OF PAYROLL TAXES - INTERNALLY
FIGURE 24 - USE OF PAYROLL SERVICES FIGURE 25 - MONEY SPENT ON PAYROLL SERVICES
Percentage of small-business owners spending in excess of $500 per month on payroll
of small-business owners spend in excess of 6 hours per month on
administration of payroll.
If you handle payroll internally, approximately how much time do you spend on the administration of payroll taxes?
Do you use a payroll service like ADP or Paychex to prepare your payroll?
If you use an external payroll company, approximately how much MONEY do you spend per month with the payroll company?
PA
YR
OL
L T
AX
ES
AN
D A
DM
INIS
TR
AT
ION
$1 to $50
$51 to $100
$101 to $500
$500 to $1,000
$1,001 to $5,000
More than $5,000
4%
11%
50%50%
16%20%
1%10%
2%
5%
18%
15%
No time - I have no employeees
1 to 2 hours per month
3 to 5 hours per month
6 to 10 hours per month
10 hours +21% 21% 25% 14% 19%
While fewer companies report using payroll service companies like ADP or Paychex (down from 44 percent to 41 percent), those that do are paying more. More than one-third of small businesses spend in excess of $500 per month on payroll services. This equals more than $6,000 per year that could be better spent elsewhere in a small business and is an increase from one-in four just a year ago.
The time commitment also is significant with 33 percent of small-business owners spending more than six hours per month handling payroll which amounts to more than 72 hours per year, or nearly two weeks.
20102011
36%
YES
41%
59%
44%56%
NO
27%
33%vs.
2011 2010
2011 2010
10
ES
TA
TE
TA
X &
SA
LE
S T
AX
FIGURE 30 - TIME SPENT ON ESTATE TAX PLANNING
FIGURE 29 - TIME SPENT ON ADMINISTRATION OF SALES TAX
FIGURE 31 - MONEY SPENT ON ESTATE TAX PLANNING
In the last three years, how much time have you spent on estate tax planning?
Approximately how much time to you spend on the administration of sales taxes?
None
No time - I don’t collect sales tax
None
1 to 10 Hours
1 to 2 hoursper month
$1 to $1,000
11 to 20 Hours
3 to 5 hoursper month
$1,001 to $5,000
21 to 40 Hours
6 to 10 Hoursper month
$5,001 to $10,000
40 Hours +
10 Hours + per month
$10,001 to $20,000
More than $20,000
In the last three years, how much money have you spent on estate tax planning?
34%
41%
44%
26%
25%
18%
18%
20%
21%
11%
7%
11%
11%
8%
3% 4%
Given the relatively higher proportion of professional services and manufacturing businesses among the respondents of the survey, it is not unusual that such a high proportion don’t
collect sales taxes.” - Todd McCracken, NSBA President & CEO
““
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FIGURE 33 - SUPPORT FOR DEFICIT REDUCTION PROPOSALS
Which of the following deficit-reducing proposals do you support?
Reform and reduce entitlement spending
Implement tax reform to create economic growth and generate federal revenues.
An across-the-board budget cut for federal agencies
Greater authority of the president to reduce Congressionally-approved spending (line-item veto)
Raise taxes on the highest-earning two percent of individuals (allow the Bush-era tax cuts to expire)
86%
84%
73%
58%
25%
FIGURE 32 - SUPPORT FOR TAX REFORM PROPOSALS
Which of the following tax reform proposals do you support?
Reduce both corporate and individual tax rates and deductions
A broad reform of the tax system in-line with the Fair Tax*
Reduce the corporate tax rate and eliminate some business deductions
A European type value added tax
*Elimination of all income and corporate tax rates as well as all deductions, and instead implement a 23 percent tax on the end point-of-sale for all goods
73%
54%
50%
4%
As voted on by NSBA’s members at the biennial Small Business Congress, tax reform is one of NSBA’s top ten priorities. The current tax code is comprised of more than 10,000 pages of laws and regulations that serve as a disadvantage to small businesses, and are egregiously complex and constantly in flux.
Addressing just one piece of the puzzle—such as corporate tax reform—without all pieces will lead to even greater complexity and a massive tipping of the scales in favor of the nation’s largest companies at the expense of small businesses.
Furthermore, small businesses strongly support implementing broad tax reform to create economic growth and generate federal revenues as a sound way of addressing the growing national deficit.
TA
X P
OL
ICY
Given the majority of small businesses are pass-through entities, there is overwhelming support for tax reform that would reduce both corporate and individual tax rates coupled with a reduction in business and individual deductions. - Chris Holman, NSBA Chair
““
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FIGURE 34 -IMPACT OF RECENT AND PENDING TAX CHANGES
Percentage of owners who said the tax change would have a moderate to significant impact on their small business.
Marginal income tax rates increase in 2013 (expiration of Bush tax cuts)
Estate tax exemption reduced from $5 million and top rate of 35% to $1 million and a top rate of 55%
Self-employed no longer able to fully deduct cost of health care in 2011 and 2012
Sec. 179 Expensing reduced to $125,000 from $500,000 in 2011
Bonus depreciation reduced to 50% in 2012
AMT exemption amount reduced
R&E (also called R&D) tax credit no longer available in 2012
74%
58%
53%
52%
51%
47%
38%
TA
X P
OL
ICY
The overwhelming majority of small-business owners support broad reform of the federal tax code—not tinkering with certain taxes here and there. While certain credits and deductions can be very helpful, the ever-changing tax landscape is a roller coaster ride without the slightest indication of what’s around the next corner. Lawmakers must work toward broad reform, and they must do it now.” - Todd McCracken, NSBA President & CEO
““
Touching again on the ever-changing maze of tax credits and laws, small businesses
expressed the greatest concern over the following tax changes, many of which
either already have taken place or will in 2013 unless Congress acts: an increase in
the marginal income tax rates; estate tax exemption drops and the tax increases;
self-employed no longer can fully deduct the cost of their health insurance; and
expiration of the expanded Section 179 expensing and bonus depreciation.
METHODOLOGYThe 2012 Small Business Taxation Survey was
conducted on-line March 14 – March 28 among
350 small-business members of NSBA representing
every industry in every state in the nation. While
the results in this survey can be extrapolated to
the at-large small-business community, it is worth
mentioning that NSBA members tend to be older,
more well-established small businesses, and there
is a higher concentration of C-Corps in this survey
than what is traditionally found in the at-large
small-business community in the U.S.
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