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Discover® Small Business Watchsm: Small Business Economic Confidence Jumps As More Owners See Conditions Improving For Their Businesses

March 30, 2009
TAXES: 85% of Small Business Owners Expect to Earn Less than $250,000; Self-Employment Tax Voted as the Most Frustrating

RIVERWOODS, Ill., Mar 30, 2009 (BUSINESS WIRE) -- Economic confidence among small business owners saw its largest jump in confidence in nine months as fewer owners see the economy getting worse and more believe conditions are improving for their own operations, according to the latest Discover® Small Business WatchSM. The monthly index increased more than six points, rising to 78.2 in March from 71.9 in February.

"Increased confidence in economic conditions is definitely a bright spot in an otherwise bleak business environment," said Ryan Scully, director of Discover's business credit card. "Small business owners are far less bleak about the direction of the overall economy than they have been in months."

The number of small business owners who say the economy is getting worse dropped to 60 percent, down from 69 percent the previous month and significantly below the all-time high of 79 percent reached in June 2008. Those who see the economy getting better rose from 12 percent to 16 percent.

March Highlights:

24 percent of owners see economic conditions for their businesses improving, up from 19 percent in February and the highest response in this category since August 2008. Similarly, 47 percent see conditions getting worse, down from 54 percent in February.

  • 41 percent of owners say they have experienced temporary cash flow issues over the past 90 days, basically unchanged from 42 percent in February.
  • Views of the current economy remained constant: 90 percent rated the economy as fair or poor in March, unchanged from February.
  • 48 percent of owners say they plan to decrease spending on business development over the next six months, a drop from 51 percent in February; while 21 percent plan to increase spending and 29 percent will make no changes.

85% of Small Business Owners Expect to Earn Less than $250,000

An overwhelming majority, 85 percent, of small business owners said their income would fall below $250,000 and would not be subject to a tax increase proposed in the Obama administration's new budget.

However, they were split on the fairness of that threshold on small business owners: 44 percent said it was fair, 46 percent called it unfair, and 10 percent weren't sure.

The Most Frustrating Tax

When asked which taxes frustrate them the most as a small business owner, 32 percent said self-employment taxes, followed by:

  • 24 percent - federal income taxes
  • 11 percent - real and property taxes
  • 9 percent - the employer's contribution to an employee's Social Security tax
  • 3 percent - unemployment taxes
  • 3 percent - state income taxes
  • 2 percent - sales taxes
  • 0 percent - excise taxes.

Seventeen percent weren't sure which taxes frustrated them the most.

Preparation and Documentation Remains Time Consuming

More than three-quarters, 77 percent, of small business owners say that the tax preparation and documentation process is very or somewhat time consuming, an increase from 75 percent a year ago. Likewise, 46 percent of owners say that finding and organizing the documents they need to prepare their taxes is very or somewhat difficult, an increase from 41 percent a year ago and 39 percent in March 2007.

"For the third straight year, we see that tax preparation and the process involved remains a significant distraction for small business owners, who often need to devote large amounts of time to getting organized and cutting through the complexity of the tax code," Scully said.

Other Tax Poll highlights:

  • 74 percent of small business owners have business income reported as part of their personal income taxes and 22 percent are taxed as corporations.
  • While 69 percent of small business owners will still turn to professionals for tax help, do-it-yourself tax software gained popularity this year: 21 percent plan to use a computer software program, up from 15 percent a year ago.
  • But no matter who does their taxes, nearly a third of small business owners, 32 percent were not very confident or not at all confident that they will receive all of the deductions to which they are entitled.
  • 38 percent of small business owners are expecting a refund, 21 percent plan to break even, 36 percent expect to pay taxes and 5 percent aren't sure.
  • Among those expecting a refund this year, 41 percent of owners said they will use it to repay debts, 22 percent will use if for their businesses, 21 percent will save for the future, 14 percent will use it for personal purposes, and 2 percent weren't sure.

The views and opinions expressed by small business owners and consumers who participate in the Small Business Watch survey are their own and do not necessarily reflect those of Discover Financial Services or its affiliates.

About the Small Business Watch

The Discover Small Business Watch is a monthly index measuring the relative economic confidence of U.S. small business owners who employ less than five employees, a segment that consists of 22 million businesses producing more than a trillion dollars in annual receipts. The Watch is based on a national random survey of 1,000 small business owners. It is commissioned by the Discover Business Card, which strives to offer the best business credit card for American small businesses, and is conducted by Rasmussen Reports, LLC (www.rasmussenreports.com), an independent survey research firm. The numeric index is calculated by assigning values to responses to a set of six consistent questions. The base value of the Watch was established at 100.0 based on surveys conducted in August of 2006. In addition to generating the index, the Small Business Watch surveys small business viewpoints on key business drivers, and also surveys 4,000 consumers to gauge purchasing behavior and attitudes towards small businesses. For past results and small business survey data, visit www.discovercard.com/business/watch. For information on Discover Business Card, visit www.discovercard.com/business.

About Discover Financial Services

Discover Financial Services (NYSE: DFS) is a leading credit card issuer and electronic payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company operates the Discover Card, America's cash rewards pioneer, and offers student and personal loans, as well as savings products such as certificates of deposit and money market accounts. Its payments businesses consist of the Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in 185 countries and territories. For more information, visit www.discoverfinancial.com.

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SOURCE: Discover Financial Services

Discover Financial Services
Jon Drummond
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or
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Daniel Delson
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