by Katherine Bartels
January and the New Year have always been a time that we associate with change and new beginnings. But this year, change is taking on a whole new meaning for many small-business owners. With the inauguration of President Obama’s second term, small business owners face significant legal and fiscal changes that could impact them for years to come. These changes bring both costs and opportunities that business owners must navigate in order to stay profitable in 2013.
Here’s where business owners can expect change, according to leading business forecasters:
Tax increases for high-income earners. The expiration of President Bush’s tax breaks for high-income earners will mean that individuals who earn $400,000 a year or more will face a 2% tax increase, and small-business owners are likely to be negatively impacted.
Small businesses that operate under the categories of partnership and LLC report tax returns through the business owner. So if the business earns more than $400,000, these small-business owners are subject to pay a substantial tax out of pocket. In a poll by Vistage International, nearly 20% of small business executives reported that they planned to cut spending in 2013.Translation? A 6.6% decline in new hires, according to a Robert Carroll report.
Change in Social Security taxes.Part of President Obama’s tax plan includes an increase in Social Security taxes by several percentage points, which will mean an increase in pay-roll taxes as well. Because pay-roll tax cuts have historically led to job creation, this tax increase could potentially cause a reduction in new jobs.
Employee health care. ObamaCare and employee health insurance options are making small-business owners think twice about new hires. Although this Act is set to begin in 2014, small-business owners are considering their options now. Some states already require that businesses with a specified number of employees provide their staff with Worker’s Compensation Insurance, but this health care reform is different. The Patient Protection and Affordable Care Act (ObamaCare) mandates that small businesses with 50 employees or more offer affordable health insurance, or pay a $40,000+ penalty. Economists fear that this could lead to a hiring shortage as small businesses are responsible for half of U.S private sector employment.This fear maybe a reality: a Vistage poll found that 30% of small-business owners already curtailed spending on new hires at the end of 2012.
Increase on Capital-Gains Taxes.The landscape of small business investing is changing too. Congress has enacted an increase on capital-gains taxes, which means that equity investors stand to make less in after-tax earnings. The result? A lowered incentive to invest in tech startups and new small businesses.
Research and Development Tax Credit. The government will continue to offer this tax credit to promote innovation within the small-business sector. The good news? This credit reportedly reduced R & D costs by as much as 7% for some businesses, leaving business owners with more money for growth in other areas of their business.
Continuation of the 50% depreciation allowance. The depreciation allowance or bonus depreciation offers small-business owners a 50% tax write-off for investing in new property or purchasing new equipment for their small businesses, making it possible for business owners to purchase the equipment necessary for their operations. However, not all purchases qualify for this tax break, so it is recommended that business owners insure their property and equipment against loss or destruction.