WASHINGTON—Tax filing day has come and gone, but for small businesses trying to plan for the future, worries lingers about complicated tax forms and burdensome federal regulations.
Businesses with 500 or fewer employees pay more than larger ones to comply with federal regulations, witnesses representing small businesses and entrepreneurs said at a hearing of the House Small Business Committee Wednesday.
Rep. Bruce Braley, D-Iowa, introduced the Plain Regulations Act in January to streamline regulations in an effort to save small businesses time and money.
“Poorly written and confusing federal regulations are a costly burden for small businesses everywhere. While the debate over regulations is often politically charged, I think we can all agree that the rules should be written as simply and clearly as possible,” Braley said.
Complex tax rules are another problem for small business, said U.S. Women’s Chamber of Commerce CEO Margot Dorfman. When business owners spend hours to understand complicated tax forms, “it takes the focus away from business…and has an impact on competitiveness, profitability and investing in future growth,” she said.
Roger Neumann, a partner at McGladrey & Pullen, LLP in Waterloo, Iowa, pointed out another issue: An increasing tax burden. The Affordable Care Act will increase taxes for businesses next year by taxing nonwage income. Because many entrepreneurs and businesspeople pay a personal tax rate under their business structure, the act could mean an increase in tax to 3.8 percent on nonwage income. Individual filers making $200,000 or more and joint filers making $250,000 or more would be affected.
This would be an additional tax to his clients, Neumann said, because currently nonwage income such as capital gains is not subject to Medicare taxes, for example.
Not all businesses would face that tax, however. Just 10 percent of business owners report more than $250,000 income, the National Federation of Independent Business said.
Still, the businesses most likely to report income above that threshold are those with 20 to 250 employees, NFIB said, making small businesses more vulnerable to higher taxes. These businesses account for more hires nationwide than large businesses, and small- and medium-sized businesses collectively added 187,000 jobs compared with 22,000 at large businesses, according to the March ADP National Employment Report.
“Every large business started as a small business, and it is the dream of every small business to be the next large business,” Leonard Steinberg, an accountant at Steinberg Enterprises, LLC in West Windsor, N.J. who works with business owners, said.
While the Affordable Care Act provision is worrisome, the burden of simply understanding regulation and dedicating resources to tax compliance has been an impediment to small business growth.
Small businesses have less cash to invest, operate on tighter budgets and have lower revenues available to invest in and grow their enterprise, the witnesses said.
One business that is running on razor thin margins is Martin Mitchell’s family construction business in Rockville, Md. The company pays about $30,000 to $40,000 each year for tax advice and filing services, Mitchell said in his testimony.
“The recovery remains fragile and tax policy should promote, not hinder, small business job growth,” Rep. Nydia Velazquez, D-N.Y., said.