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ACCOUNTING

For Small Businesses, an Annual Nightmare

Three out of four business owners say tax season cuts into their day-to-day operations, according to a new study.
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Two years after a presidential advisory panel proposed simplifying the federal tax code, its growing complexity is driving more small-business owners to seek help from accountants, lawyers, and other tax professionals, according to a new survey.

Out of 1,000 small employers surveyed in March, 73 percent said they will hire a professional to do their taxes this year, compared to 54 percent of 4,000 non-business owners surveyed by Discover.

Surprisingly, most small-business owners cited finding more deductions as a secondary reason for turning to a pro, the survey found. What led most of them to outsource the annual task was the paperwork.

Seventy-seven percent described tax preparation and documentation  as a time-consuming process, while 74 percent said it distracted them from the day-to-day operations of running their business, the survey found.

Another 39 percent said just finding and organizing the right documents was a daunting chore.

"Tax preparation and filing certainly places a burden on small business-owners in America," Sastry Rachakonda, director of Discover's small-business credit card, said in a statement. "Nearly two out of five business owners struggle with finding and organizing tax documentation."

"We have crafted a tax system that is so complex and burdensome that small businesses are spending valuable time and financial resources on record-keeping and outside help to ensure compliance instead of using these resources to invest and grow their business," Macey Davis, a tax expert with the National Federation of Independent Business, said at an IRS roundtable in Washington this month. 

Despite the growth of tax and accounting software  in recent years, most small employers still value real-life tax experts, Rachakonda said.

By hiring an accounting, 40 percent of small-business owners said they expected to pay lower taxes, compared to only 30 percent of the non-business owners, the survey found.

As such, more than half of the employers polled said they felt accountants earned their often exorbitant fees.

According to Davis, hiring an expert to keep track of tax documents costs small-businesses an average of $75 an hour.

"It's costly, but it's a wise choice," said Barbara Weltman, a New York-based lawyer who specializes in small-business taxation issues, and an Inc.com columnist. "Small business owners should be running their business and let the experts take care of their taxes."

Weltman, who has more than 30 years of experience in small-business taxes, said she doesn't expect the process to get easier any time soon.

"If anything, it's going in the other direction," she said.

Last updated: Mar 26, 2007




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