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  • Avoiding the pitfalls of tax season

    There might not be a more dreaded time for small-business owners than tax season.

    Filing taxes can be difficult for even the most savvy business owners.In fact, the majority of fledging companies cited filing their taxes as the biggest worry of the year.

    The National Small Business Association reported more than half of small businesses said the paperwork and administrative burden corresponding with tax season generates the greatest harm for their business.

    But how much time can a business possibly eat up trying to file their taxes?

    According to the Washington Post, the average small business owner spends more than 40 hours filing their federal taxes every year, which is equivalent to a full business week. That's just the tip of the iceberg, as roughly 25 percent of small businesses spend three weeks on their annual tax filings. According to Bloomberg, 40 percent of small business owners spend at least 80 hours dealing with their federal taxes.

    However, the amount of time isn't the only strain related to tax season. There's still money changing hands from employer to the government. The NSBA reported 47 percent of small-business owners stated the actual tax bill itself is what produces the greatest threat to the success of their company.

    The cost of getting help
    Filing taxes can be an onerous task for even the most savvy business owners, which is why many choose to ask for help. According to the Post, only 12 percent of entrepreneurs filed their own taxes in 2014, a 15 percent drop from the previous year. But hiring someone to help out with filing taxes can get expensive, as 50 percent of small-business owners drained their bank accounts by more than $5,000 on accountants and administrative costs in 2013. But there's more. Around 25 percent of owners spent more than $10,000 on these costs.

    Tim Reynolds, vice chair of the NSBA and owner of a software company, didn't like the growing trend of business owners who outsourced their taxes.

    "That money would be better spent hiring a new employee or growing the business," Reynolds said during a congressional hearing on Wednesday.

    Tax tips for small businesses
    Forbes urged small-business owners to file their taxes online and to backup their electronic records to make the filing season less complicated. Backing up company records and files on a regular schedule saves valuable business information. Owners should send this information to a remote location such as the cloud. Forbes said business owners can choose to back up their data on-site, but it's crucial to keep information stored way from the office. Meanwhile, filing online is a good idea because it's a quicker process and less susceptible to errors.

    New tax proposals
    Reynolds is hoping filing taxes becomes less of a problem for many small-business owners. He recently told the House Small Business Committee to review recent expired tax provisions, including research and development credits and business investment expensing in order to come to the aid of the nation's small businesses.

    "The ever-growing patchwork of credits, deductions, tax hikes and sunset dates is a roller coaster ride without the slightest indication of what's around the corner," Reynolds said.

    He added that a consistent model "should be the objective" as lawmakers set their sights on tax reform.

    Taxing is a big business
    According to Bloomberg, the Internal Revenue Services site, IRS.gov, had more than 26 million unique visitors in March, which is more than any other government site, including healthcare.gov. That's a shocking stat considering healthcare.gov was bogged down during the days leading up to the March 31 health care enrollment deadline due to a flood of traffic.

    Many people visit the IRS.gov to learn about tax measures so they will not be audited. The IRS audited 106,776 small businesses last year. On average, auditors demand $5,500 from those businesses in addition to taxes.