It's past time that the tax code be simplified. According to an article in The Washington Post this week, the average small business owner devotes over 40 hours of time to compiling and dealing with tax return filing, and 25% of them spend at least three full weeks on this chore. Yet, this isn't because most business owners are trying to do their own taxes - no, the reality is that only 12% of employers filed taxes on their own without the help of a preparer or CPA. The tax code is simply too complex for most prudent business owners to take on the risk on non-compliance. Half of business owners spend more than $5,000 for expert help, and 25% spend more than $10,000.
So, assume that a small business owner had earnings of $250,000. At that size of a business there isn't likely an accounting staff and the owner would be the person responsible for devoting a week of their time to preparing tax information for their CPA. If you divide $250,000 by 51 weeks in a year (since the 52nd week is consumed by this compliance activity), that equates to a rough estimate of cost for the owner's time of $4,900. If you then throw in a CPA's bill of $5,000, this, in effect, is an additional hidden tax of nearly $10,000, or nearly another half a percent.
Then when you look at the high level of government administration required for such a complex tax system, it's no surprise that there are nearly 100,000 people working for the IRS, with an annual budget of about $12 billion.
There are many interesting tax reform proposals out there from a simple flat tax to a national sales tax. Please consider contacting your elected officials and insisting that they devote serious attention to tax reform and simplification.