Regulatory Costs of Small Business

September 29, 2005

Excess regulatory costs are like sand in the gears of commerce, diverting companies’ attention toward legal and administrative tangles and away from productive work.

The Small Business Administration’s Office of Advocacy has released a new study (PDF) on the costs of federal regulations on small businesses, including the costs of complying with the federal income tax. In fact, the paper’s section on tax compliance relies on the Tax Foundation’s own 2002 study of compliance costs by economist J. Scott Moody:

The estimate of the cost of federal tax compliance relies on a 2002 report by the Tax Foundation that provides extensive details about the time required to file federal income tax returns…

The basic approach to the computation of tax compliance costs is straightforward and easy to describe. The first step uses data from the Internal Revenue Service on the amount of time required to complete each type of tax form, and the number of filings for each type of form…

The number of compliance hours is broken down in Table 6 for businesses, nonprofits, and individual filers. The total number of hours required for compliance is nearly 5.8 billion per year, and American businesses account for roughly half of the total hours.

Read the full SBA study here. The press release is here. For more on the cost of tax compliance see here.


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