There are few things as confusing and complex than the topic of our current economic crises. It reads like a Tom Clancy novel – unregulated government spending, hidden deals, and a trillion dollar coin loophole. But this isn’t fiction, it’s our government.
The January 1st deadline known as the fiscal cliff has come and gone, but what has changed? The Senate has approved the Fiscal Cliff deal, but what does it mean to everyday small business owners?
Boiled down to its most basic elements, the fiscal cliff and the new tax bill was an expiration of the Bush administration’s tax cuts, and the need to balance the federal budget and reduce the national deficit, which is currently at a mind-boggling $16.5 Trillion. To put it in a better perspective, if every American citizen paid an equal share to balance the budget, we would each owe $52,304.91. As a country we are deep in the red, which places a huge burden on not only the government, but the American market and people.
Many fear that small businesses will receive the brunt of the impact as big government scrambles to cut back on spending. Tax breaks and incentives that have allowed small business owners to get off the ground may now lose that crucial support.
There are plenty of articles detailing the concerns small business owners have about the Fiscal Cliff deal, but with all of the fear and confusion going around, we thought it would be beneficial to highlight the good news about the tax bill and what it means to small business.
The Good News
For starters, the good – probably the best news – is that 97% of businesses will not see their income taxes go up in 2013. This was an area of primary concern for small business owners everywhere, and the new bill promises that a large majority of entrepreneurs will not see an increase on this front.
Secondly, the new tax deal makes permanent the extension of a handful of incentives that bode well for small business owners. Such as:
1. R&D tax credit: This deduction allows businesses to qualify for tax breaks based on their ability to test and improve new innovations in certain sectors of the market. Read Bloomberg to learn more details and see if your business qualifies.
2. Section 179 deduction: This break is allows businesses to deduct the full purchase of equipment and software financed during the tax year. This is huge for small businesses that need help getting the ball rolling. As an added benefit, the limit you can claim has been increased from $125,000 to $500,000.
3. Work Opportunity tax credit: This credit gives our Veterans, under-served citizens, and small businesses a helping hand by allowing businesses to save up to 40% of the qualifying employee’s wages.
4. New Market tax credit: This deduction encourages businesses to invest in community development by giving credit for up to 39% of the investment for qualified initiatives. Visit the government site to learn more.
Lastly, increased certainty in taxes (even if it means increased taxes) is always better for the market than uncertainty. Accountants everywhere will acknowledge the need for tax stability for a growing economy. Recent data from the Mercatus Center at George Mason University supports this tenant of economics.
The national and global ramifications of the new tax bill have yet to be felt, or even fully understood. (Click here to read the new tax bill (pdf) in its entirety – good luck!) Fortunately, analysts have found that the future may not look as bleak for small businesses as originally feared. There may be light at the end of the tunnel.
Check back with our blog to get small business tips and the latest updates about the new tax bill.
*Note that these new changes are only estimates from the Joint Committee on Taxation, and actual changes that have not yet been implemented. As of January 26, the Senate and House of Representatives approved of the new bill, which is expected to be made law shortly.