To hear the United States Chamber of Commerce tell it, small businesses across the country are living in fear of the Obama administration's economic plan, particularly the part that would raise taxes on families making more than $250,000 a year. But I'd wager that most small businesses, starting with my own, have a very different set of concerns when it comes to taxes.
For many of us, it's not about the money. It's about the sheer hassle of compliance with the tax laws and the complete loss of control you feel when dealing with the government.
I'll admit that it's easy for me to say that tax rates aren't a concern since my business is running at break-even and thus doesn't have any profits to tax. I don't pay myself anywhere near $250K, obviously, and in fact for 2008 we'll be distributing losses to investors in New West Publishing LLC.
But that doesn't mean we don't pay taxes. There are, first of all, payroll taxes, which have two components. There is the money the company pays for each employee for Social Security and Medicare, and then there is the money that the company withholds from employee wages for both Social Security and income taxes.
The money from withholding is not "our" money, but because we pay the payroll taxes in a monthly lump sum it doesn't feel that way. Every month we have to write a significant check to the U.S. Treasury; it's one of our larger payables and the most unforgiving in terms of timing. If you're late you get hit with a large and non-negotiable penalty — a necessary measure, perhaps, lest everyone pay late but still something that can seem punitive when you're struggling to make payroll.
We also have to pay payroll taxes to the state, which is a whole separate process. We pay for unemployment insurance and for workers' compensation insurance, both of which are mandatory and thus also a form of tax. We have only five full-time and half a dozen part-time employees, but our very skilled bookkeeper spends at least a few hours every week on paperwork related to all of this. The systems on the government side often seem very archaic, and mistakes are surprisingly common.
What we'd like more than anything is a less cumbersome process and an IRS field rep who was actually empowered to work with us rather than simply scold (and punish) us for missing a payment or paperwork deadline. We were recently told that we had missed a quarterly payroll tax report dating back to 2006 — which, in fact, we had not, but the burden of proof was definitely on us.
Then, of course, there is the nightmare of annual tax returns. When we started the company, I chose to structure New West as a limited liability company rather than a corporation primarily because an LLC provides more flexibility in how the firm is organized and managed. In an LLC, profits and losses are passed through to the owners rather than being taken on the company level — and I had no idea what a headache that would turn out to be.
For one thing, there are pages and pages in the LLC agreement itself devoted to tax issues, and I had to pay a lawyer a lot of money to put all that together. Our initial fundraising was in the form of a loan that converted to equity — not an unusual structure in the venture capital world. But when we set out to do our first company tax return back in 2005, the mechanics of the fundraising and the particularities of our LLC structure were so complex that the accountant we hired hadn't even come close to figuring it out by the time April 15 arrived.
We filed an extension, of course, and found a different accountant, but then the investors were all irritated that they hadn't gotten the K-1 statements that they needed for their own taxes. Come to think of it, some of my investors are probably getting irritated at this very moment that they don't yet have their K-1s for this year, but as a very small business with complicated returns I don't have much leverage to get it done quickly. (Note to entrepreneurs: If I had to do it over again I'd set up New West as a corporation mainly for these reasons.)
None of the above has anything to do with the real business of New West, and that's where the frustration, and anti-government sentiment, comes in. In my experience small-business owners don't mind paying their fair share, but they very much want to spend their time creating better products and services, not jumping through hoops for the tax man.