Small Business Taxes: Let Me Count The Ways

According to NFIB’s most recent Small Business Problems and Priorities report, tax-related issues continue to be challenging for small business owners. From a list of 75 problems ranked by severity, of the eight tax issues listed, two are in the top 10. Three are in the top 10 if you count “unreasonable government regulations” as a tax, it costs money to comply with regulations, “reasonable” or not.

NFIB’s Small Business Economic Trends report finds that the percent of small business owners reporting taxes and regulations as their single most important problem has declined since 2016 (Chart 2) due to the appearance of a new tax which was even worse – inflation (Chart 3). Government policies are largely to blame for the inflation problem, spending trillions of dollars to support consumers and favorite industries. All of this inflationary spending is financed by increasing the national debt, rather than tax revenue which would have reduced private spending.

Compliance costs are significant, and the tax code is complex. Many of us use some type of professional service to fill out tax forms and keep us up to date with changes in the tax laws that owners have to navigate to stay in compliance. Ninety percent of small business owners hired a professional tax preparer to file their most recent tax return. Of those hiring a tax professional, 88 percent reported that their main reason for hiring one was because the tax laws and requirements are too complex.[1] Firms hire costly outside consultants to manage their taxes, costs that are passed on to customers.

Taxes remitted by companies are priced into the goods and services they sell, adding to inflation pressures. Consumers also pay for all the regulatory compliance costs firms incur, just as they pay for higher energy costs firms encounter. Politicians like to tax firms, not consumers, especially around election time. However, firms must earn a return on the investment in the company or go out of business. All of these added costs make it more difficult for owners to successfully operate their small business and complete with their larger counterparts.

Governments use taxes to accomplish their objectives, a mechanism to redistribute dollars to favored entities. However, consumers (including small business owners purchasing supplies and inventories) are always picking up the tab at the end of the day.

[1] 2024 NFIB Tax Survey 2024.