CHART OF THE WEEK: The Cost of Small Business Tax Compliance
Today is tax day in the United States. And in honor of that auspicious event, this week’s chart looks at the cost of small business tax compliance.
Although it probably won’t surprise most of you to learn, it costs much more on a per employee basis for smaller businesses to adhere to federal tax regulations. The figure below shows the results of a study of the cost of complying with U.S. income tax conducted on more than 7,000 companies that met the IRS definition of a small business – a C corporation, S Corporation, or partnership with up to $10 million in assets.
The study’s authors combined the cost of both money and time spent on adhering to tax rules, estimating the cost of time at $45.50 per hour. When they combined the time and money spent on adhering to the tax rules, they found steep economies of scale in tax compliance. As the figure shows, businesses with one to five employees averaged $7,274 per employee to adhere to federal tax regulations, while businesses with more than 50 employees averaged only $296.50 per worker.
For those keeping score, the study found the largest cash cost of tax compliance was for tax preparer time, while the largest time burden was for keeping records.
About Scott Shane
Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By. 
One of these days the government will realize that they are imposing a large amount of overhead on businesses and that like most overhead, the cost is disproportionately heavy on smaller businesses that aren’t able to spread it around.
Boy this really makes me want to start a small business. Sure I could do all by myself, and looks like I will be.
This chart matches my situation perfectly! I know I should be “happy” to have been successful but REALLY?
[...] scrupulous in paying what I owe. But when America’s smallest businesses spend an average of $7,274 per employee just to comply with the intricacies of the tax code, something appears to be seriously wrong with [...]
[...] Small biz compliance cost still disproportionate. Despite the importance of small business to the economy, here in the U.S. at least, small business owners still face many disadvantages including a higher cost per employee for tax compliance. If you want to get an idea of just how uneven things are, check out the chart at the above link and get a better idea. Small Business Trends [...]