We are continuing on the topic of tax compliance from the previous article.
If there is one thing most of us can agree on, it is that this nation's tax code is complicated! In 1955, the Internal Revenue Code was just 409,000 words, which already sounds daunting. By 2017, it had ballooned to nearly six times that size, clocking in at over 2.4 million words. According to the Tax Foundation, there are also roughly 60,000 pages of tax-related case law that are vital to understanding this nation's tax code.
The hardest thing in the world to understand is the income tax."
- Albert Einstein
Tax compliance cost estimates range from $200 billion to over $400 billion annually. Despite this range, what we do know is that it costs businesses a small fortune to remain in compliance with the tax code. According to one study, it takes Americans over 8.9 billion hours to comply with U.S. filing requirements. This is the equivalent of having 4.3 million people working full-time on tax compliance and filing returns. A majority of this time requirement is attributed to U.S. businesses.
The time required to handle the IRS paperwork for U.S. businesses has skyrocketed in recent years. The IRS has revised its estimate for business tax return compliance from 363 million hours to 2.8 billion, which pushed up the time commitment nearly 50 percent.
In December 2017, the United States passed sweeping tax reform known as the Tax Cuts and Jobs Act. While this new tax code is supposed to provide benefits to businesses as well as reduce the complexity of the tax code, it also creates additional costs and issues in the form compliance.
We have yet to receive the latest analysis from the IRS about the cost of tax compliance, but here is the most recent estimation from the IRS.
As your company grows, it's filing requirements are going to evolve. Likewise, the tax code in this country has scheduled changes, and there may also be some additions that are passed during the year. Staying up to date on these matters is not only your responsibility but also the best way to ensure the longevity and profitability of your business. Your finance leader should maintain open and ongoing communications with your tax expert throughout the year.
Do you have more questions? Let us know. We would be happy to introduce you to someone with the tax expertise you need.