Experts Weigh In: I Hate Small Business Taxes

shutterstock_181519442Benjamin Franklin said it best when he uttered the very true, “Nothing is certain but death and taxes.” Love them or hate them, taxes are just a part of life, and a very big part of small business. We asked some of our small business experts which small businesses taxes they hated the most. These were our 18 favorite answers.  

1.“I hate the social security tax…and the fact I have to pay 1/2 of it for my employees….it’s the ultimate ponzi scheme. I don’t mind paying taxes for roads, schools, military, ect, but social security is the evil Robin Hood of taxes.” -Michael Bremmer, Telecomquotes.com

2.“In Texas we have a property tax on our business equipment. As a small business, you work so hard for every little bit of growth that it’s kind of exciting when you can buy up to a faster printer/copy machine or new telephones…. except that then you get the privilege of paying taxes on that equipment at the end of the year. Talk about a truly ridiculous way of discouraging growth. Annoying!” –Danielle Kunkle, Boomer Benefits

3.“The business tax I hate the most is payroll tax. You would think that the government would want to encourage people to hire full time employees instead of independent contractors. Instead they penalize you by making you pay payroll taxes when hiring employees that you do not have to pay when using independent contractors.” –David Waring, Fit Small Business 

4.“The small business payroll tax that we hate the most is the employer portion of the payroll tax. I co-founded GovernmentAuctions.org with my longtime friend from nothing but bright ideas, marketing research and planning, and the little money we had to get everything jumpstarted. Part of our success includes outsourcing much of the work to India and the Philippines instead of hiring lots of employees for whom we would have to pay payroll taxes. Yes we have to have some employees in house. But if there was no payroll tax, chances are we would have hired many more people rather than outsourcing all the technical and technological work out of the country. For several years as part of federal stimulus, we had a lowered payroll tax (at only 4.2%), but once that reduction expired they went back to 6.2% and if you add top that the 1.45% Medicare tax, you’re paying close to 8% just for the privilege of having employees? At this rate, who wouldn’t’ try to outsource as much as one can?” -Ian Aronovich, GovernmentAuctions.org

5.“As a small business owner I really don’t like the social security tax. I have to pay the entire 12.4% every year for social security. Plus the tax benefits I will receive when I retire will get hit with the federal income tax. That’s taxing me on something I already paid years ago. There are also huge concerns in regards of social security going bankrupt. If I’m lucky I will see some of my money back when I retire.” –Lisa Chu, Black N Bianco Children’s Formal Wear

6.“We work with small businesses to help them not hate taxes. This year small businesses need to make sure they are adhering to and complying with the affordable care act (ACA), failure to do so could mean costly fines, as much as $100/per employee per day with a maximum fine of $36,500 per employee for the year, stated Jessica Mah, CEO at inDinero. There’s also more flexibility now for small businesses to make outright deductions for repairs, maintenance and for equipment expenses of $500 or less, rather than having to capitalize such items or depreciate them over time. One theme we always preach to our clients, especially when it comes to deductions is to document, document and document some more. Being able to substantiate and back-up your deductions can become paramount and it’s just good hygiene for any business owner. All this said, we advocate that you should always seek counsel from a tax professional to ensure you are following all of these codes to the letter.” –Jessica Mah, inDinero.com

7.“The hardest thing is how different payroll taxes are in every state. Take Pennsylvania for example – they have a dozen local taxes, including a school district tax. So if you employ people who live in different districts (totally possible), you need to find out the specific tax per district. It makes it very hard to comply, especially if Pennsylvania is your 4th, 5th, or 50th state doing business.” –Isaac Oates, Justworks

8.“I run a wedding photography business in Boston, MA. The small business tax I hate the most is called Use Tax in Massachusetts. Business owners are required to pay Massachusetts sales tax(6.25%) on properties purchased from out-of-state stores. To me, that means having to pay tax on all of my camera and computer equipments even if they were ordered online and shipped to me. This can amount to thousands of dollars in just a few years!” –Aiden Rhaa, Aiden Rhaa Photography

9.“I dislike the mandatory annual city tax, because it’s paid even by new businesses, which is tough when you’re just starting out. We’re okay with it now that we’re 16 years into business, but was difficult at the beginning, or when we had tough times and were losing money.” – Georgette Blau, On Location Tours 

10.“I’m not a fan of the arbitrary distinction between the way employee and owner health care premiums are taxed. It requires separate accounting lines and W-2 tracking for a relatively small amount of money.” – Daniel Abrams, Masslight

11.“A tax on small business that I hate: the new headcount excise tax to support The Affordable Care Act, to complete form 720 I spend about $150 with my CPA to send a $10.00 check for the tax due. Government efficiency at its best!!” – John Kinskey, AccessDirect

12.“I don’t hate any taxes.Taxes are the price we pay for government and, in the case of employment taxes (Social Security/Medicare) a safety net for the elderly.

The closest thing to one that I hate is not the tax (it’s a fraction of a percent of the first $11,000 or so in payroll) but the PENALTIES on the unemployment tax in Illinois.

If I’m a day late filing a return for the 3rd or 4th quarter of a given calendar year–for which, of course, I owe NO taxes at all–there’s a $50 penalty. That one galls me.

But taxes? My only beef is that they aren’t higher, on higher incomes, so that we don’t have so many needs going unmet, and so many people suffering while a few prosper.” – John R. O’Brien, Attorney at Law

13.“The small business tax I currently hate is employment tax. As a small business, having to pay the self-employment tax on top of federal and state income taxes makes it very hard to make enough money to remain self employed. Additionally, in order to grow as a business, I will need to take on more clients which means I will need additional help. Having to pay employment tax on an employee would eat all my profit from those additional clients. Because of employment tax my only option is to raise prices.” – Michelle Balducci-Connelly, Michelle Marie Photographie

14.“The small business tax I dislike most is the sales tax on taxable goods which is typically collected by businesses with a physical location in retail sales (which is subsequently reported and paid to the state). I dislike it because some states require online businesses to do the same. Instead they should consider online businesses as a type of mail-order business, and should not require sales tax collection and payment.” – Dr. Brenda Randle, The Writing Dr.

15.“Having built my Media Relations Agency in St. Louis, Missouri, I despise the fact that the City of St. Louis imposes a 1% Income tax on all employees and corporation profits on top of the State and Federal Taxes already collected.This is also mandated to be collected if someone lives in another county and works in the City of St. Louis. However, it’s one of the key generators of St. Louis City Revenue.” – Chris Kuban, Chemistry Multimedia, LLC

16.“Among the business taxes that incense me, the federal rate of 35% is the most punitive. As we know, it is the highest in the world, however as a small business I do not have the ability to hire a team to find and exploit all of the loopholes that larger companies enjoy. Each year I have to take the majority of my company’s profit out to avoid the over-inflated rate. That leaves the company cash poor and struggling with cash flow. At least until I lend the money back and then there are interest expenses. What a stupid dance to have to do because of the punitive rate.

If I had the ability to HQ overseas and pay a lower rate by not repatriating the funds, I would do it, just like the big guys.” – Louis Altman, GlobaFone

17.“I disagree with different county taxes that I have to pay when it comes to my distribution. Although our production started in Pulaski County, it has since expanded into countless other counties within the state and outside of the state. I have to report where each magazine is sold and also pay a tax for that. Depending the county, the tax can be higher or lower. No matter the difference, it would much easier and time consuming if the state had one tax and not over 100. It’s part of the business as of now and an annoying paperwork process.” – Jasmine Kelsey, missLady magazine 

18.“I do not like the state income tax that small businesses must pay on top of federal income taxes in that it adds another barrier to entry for entrepreneurs to launch their companies. It’s unnecessary in my opinion. I think that should be eliminated in order to motivate people to start more small businesses. The governor of Ohio recently proposed a budget that included eliminating this tax for certain small businesses, and I think that should be adopted and other states should follow a similar path.” – Andrew Schrage, MoneyCrashers

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Deborah Sweeney

is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best.

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