Small businesses are paying the extra money to hire a professional help them navigate the ballooning tax code.
For the first 15 years that the Cheshire Cat, a gift shop in Grayslake, Ill., was in business, owners Sherri and Scott Comstock managed their own tax paperwork with minimal professional help. Today, they spend $40,000 a year for an in-house bookkeeper and $6,000 annually for an outside accountant.
"There is no way a small-business owner could track [the tax code] and run their business," said Sherri Comstock. "There are not enough hours in the day."
As financial-reporting rules fluctuate, small-business owners say they must increasingly invest in professional accounting support. Many are also bracing for the onslaught of 1099 forms they'll need to file in 2012 if a new tax regulation that was tucked into last year's health reform isn't repealed.
Over the past decade, the tax code has ballooned in size, to its current 3.8 million words from just 1.4 million in 2001, according to the Internal Revenue Service's Office of Advocacy. As the economy has weathered two recessions, lawmakers have shepherded numerous packages of temporary tax relief through Congress – from patches for the fluctuating Alternative Minimum Tax to limited extensions of the Bush tax cuts – averaging about one revision a day to the tax code.
Amongst small businesses, "we are seeing more demand for accounting and bookkeeping professionals," said Katherine Spencer Lee, a senior district president with Robert Half International Inc., a staffing firm based in Menlo Park, Calif.
Indeed, accountants and auditors are expected to experience faster-than-average employment growth over the next decade, in part because of "changing financial laws and corporate governance regulations," projects a 2008 Bureau of Labor Statistics report, the most current available.
While it's difficult for large businesses to keep abreast of changing regulations, small businesses pay a disproportionate amount to adjust to new rules. In general, the cost of tax compliance at smaller firms is $1,518 per employee, compared with big companies, which pay about $517 per employee, according to a 2010 study from the Small Business Administration's Office of Advocacy.
To be sure, many of the most recent revisions were intended to bring tax relief to small firms, such as hiring and health-care credits and larger expensing limits.
"As I think about the changes that have occurred over the years in the tax code, the [main ones] that come to mind are beneficial to businesses," said Larry Nannis, a CPA and partner at Levine, Katz, Nannis & Solomon, P.C. in Needham, Mass., who also serves as the National Small Business Association' s chairman. "But in spite of that, the provisions have created a need to incur additional expertise or to provide additional information."
To continue reading this story, click here. Also, check back for Lawn & Landscape's April Cover Story, which gives advice on when to hire an accountant and what to look for to find the right match.