The IRS Estimates Your Business Return Takes 50 Hours and $4,200. That Is Before You Owe a Dollar.

The federal government publishes its own estimate of what complying with the tax code costs you, and it prints it in the instructions that come with the form. For a small S corporation the figure is 50 hours and $4,200. The tax itself is a separate line item. This one is charged whether you made money or not.

The government publishes the number. It is in the instructions.

There is a strange thing about the cost of tax compliance: everybody complains about it and almost nobody quotes the official figure, which has been sitting in the back of the form instructions for years. Under the Paperwork Reduction Act, the IRS has to estimate what it is asking of you and publish it. So it does — hours and dollars, broken out by the kind of return you file.

For 2025 returns the estimates are these. An entity taxed as a pass-through corporation — the S corporation bucket, 6.2 million returns of which 6.1 million are classed small — averages 50 hours and $4,200 in out-of-pocket costs. A partnership or multi-member LLC filing Form 1065 averages 50 hours and $3,300. A taxable corporation filing Form 1120 averages 40 hours and $3,900. Out-of-pocket means preparation and filing fees, software, postage — money leaving the business, not the value of anybody’s time.

Read those the right way and they are not outrageous. Read them the way a founder actually experiences them and they are: fifty hours is more than a working week, and $4,200 is real money for a business doing a few hundred thousand in revenue. Neither number depends on whether the year was any good. A firm that lost money still files, still pays the preparer, still spends the week.

Most of it is not April. It is the other eleven months.

The individual side of the data is where the shape of the burden shows up, because the IRS breaks it out by activity. An individual return with no business schedule attached averages 8 hours and $160. Add a Schedule C, E or F — sole proprietorship, rental, farm — and the average goes to 21 hours and $610. Twenty-nine percent of all Form 1040 returns are business filers by that definition.

Now look at where the 21 hours sit. Ten of them are recordkeeping. Four are tax planning. Five are form completion and submission. Two are everything else. The part most founders think of as “doing taxes” — filling in the form — is under a quarter of it. The bulk is the year-round administrative work of being able to answer the question at all, and it does not arrive in a block in April. It arrives in twenty-minute pieces, all year, in the middle of other work.

That distribution is the argument for the least glamorous advice in small business, which is to keep the books current. Not because it is virtuous — because those ten hours get spent either way, and spent in arrears they are spent twice: once reconstructing what happened and once recording it. The founders who describe tax season as painless are almost never the ones who worked harder in March.

Those ten hours get spent either way. Spent in arrears they are spent twice: once reconstructing what happened and once recording it.

The number that makes it a small business problem

A large firm’s compliance burden is far bigger in absolute terms. The IRS puts a large pass-through corporation at 290 hours and $42,600, a large partnership at 180 hours and $29,400, and a large taxable corporation at 610 hours and $69,400. On the face of it the big companies have the worse deal.

They do not, and the definition is what gives it away. Large in these tables means end-of-year assets above $10 million. So the large pass-through spends about six times the hours of the small one — while sitting on a balance sheet at least a hundred times bigger, and while having a finance function whose job includes this. The small firm spends its 50 hours out of the owner’s own week, in a business where nobody else can do it.

That is the whole of the regressive-burden argument, and it does not require anyone to be angry about tax rates. A fixed cost divided by a small denominator is a large cost. It is the same arithmetic that makes health coverage, legal review and payroll processing land harder on a five-person firm — the work does not scale down to the size of the business doing it, so the smallest firms pay the highest effective price for exactly the same compliance.

What to actually do with this

Three things follow, and none of them is a tax strategy. The first is a budgeting point: if you are pricing your year, compliance is a line item with a published estimate. Put $3,300 to $4,200 and a working week in the plan before you decide what you can afford. Founders routinely budget the tax and forget the filing, then experience the preparer’s invoice as a surprise every single year.

The second is where to spend to make it smaller. The hours are concentrated in recordkeeping, so the leverage is in the bookkeeping, not the return. A monthly close — even a rough one — moves work out of the expensive column and shortens the preparer’s job, which is the one part of this cost that responds to anything you do.

The third is the one worth saying out loud. This is fifty hours a year of work that produces nothing a customer will ever see, and in a business of one or two people it comes directly out of the time you would otherwise spend on the work that pays. That is not an argument for resenting it. It is an argument for not doing it alone and not doing it twice — the founders who get this down are the ones who set up the system once, with somebody who has done it before, rather than rebuilding it under pressure every February.

One caution on using these figures. The IRS says in the same paragraph that they are national averages, that they do not necessarily describe a typical case, and that most taxpayers experience lower than average burden. A one-person consultancy with clean books and a single revenue stream should be well under them. Treat the numbers as the shape of the cost — where it sits, what drives it, who it lands hardest on — rather than as a prediction of your own invoice.

Published by The Lonely Entrepreneur — the community and coaching platform for entrepreneurs who are building alone. lonelyentrepreneur.com

This article is for educational purposes and is not a substitute for professional financial or legal advice.