Despite the fact that small and medium sized businesses are established linchpins in the American economy, recent research has discovered current tax policies disproportionately affect them and stifle their growth opportunities.
Sage has recently investigated the effects of taxation on small and medium sized businesses. As a former small business owner, I found the results frustrating, yet not surprising. As it turns out, the smaller a company’s employee count is, the greater percentage of their profits go towards taxes.
In other words, under the current tax systems, small and medium sized businesses end up paying higher tax bills than larger enterprises with more profits. This inverse relationship between tax bills and company size can disincentivize entrepreneurs from starting their own businesses, as they know they could end up paying for it down the road.
Given the importance of small and medium sized businesses to the economy, it’s crucial to recognize and address these disadvantages. The most powerful step towards rectifying this inequity lies in instilling policy changes that would reduce the tax burden faced by small businesses.
In the meantime, small and medium businesses can still take measurable steps to lessen the burden to their workflows:
1. Cutting Back on Cash Flow Issues
Small and medium sized businesses have limited financial resources, making them very susceptible to losses from late or large payments. For instance, medium-sized firms, with about 100-499 employees, spend over $80K on tax-related accounting in each year— a significantly higher cost than small (10-99 employees) or micro (less than 10 employees) businesses.
High tax burdens increase financial pressures for small and medium sized businesses. These pressures stifle a company’s ability to grow as it lacks the capital to invest in new or experimental projects, strategies, or services to develop its business.
About Jennifer Warawa
Jennifer Warawa is EVP of Partners, Accountants & Alliances at Sage.