The impact of the fiscal cliff on your business

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    In the late hours of New Year’s 2013, the House approved a deal which helped the country from going over the “fiscal cliff.” The House voted 257-167 to approve the business, meaning 98% of U.S. taxpayers will not see tax increases while extending unemployment benefits. Additionally, a sweeping round of tax increases and government spending cuts were avoided — for the time being.

    In other words, the Bush-era tax cuts will remain in effect permanently and will now become part of the United States tax code.

    Conversely, the top 2%, individuals and families earning over $400,000 and $450,000 will see tax increases.

    Bottom line: This will help generate revenue to fund various federal programs in the future.

    However, this sets up another political showdown in March. This new “March Madness” debate will focus on spending cuts and on raising the nation’s limit on borrowing.

    In other words, potentially debating the debt ceiling crisis — or, essentially, how much the government can borrow to fund federal programs.

    With this as a backdrop, how does the deal approved last week affect entrepreneurs or small business owners?

    According to the Washington Post, it appears the deal will garner mixed reactions from the small business community. The paper states various compromises as part of the package will most likely include stipulations generally to assist and potentially hinder entreprenuers, depending on your situation.

    The paper cites critical measures which will most likely impact start-ups and/or small businesses:

    • Overall Taxes: If you’re a small business with a pass-through income of over $450,000 and $400,000 for families or individuals, respectively, expect your tax rates to increase. With income levels less than those amounts, don’t expect an increase.

    • R&D Investment: Tax credits were extended and reinstated retroactively for 2012, As an employer, you qualify for tax breaks ranging from 6 percent and 14 percent of the businesses R&D expenditures.

    • Section 179 continued: According to the Post, “…Congress renewed for another year the maximum deduction levels for bonus depreciation and Section 179, which give tax breaks to businesses that purchase or lease software and equipment — both provide a boost for small employers planning to invest back into their firms in 2013”.

    • The Work Opportunity Tax Credit (WOTC): Tax incentives for firms that hire widely underemployed groups like youths and veterans will be extended and you can expect breaks for renewable energy technologies and retail/restaurant improvements, which were extended through 2013.

    • Payroll taxes increased: Expect payroll taxes to increase to 6.2 percent—up from percent for all Americans. The lawmakers in Washington did not address this issue as part of the recently negotiated deal. Economists warned the move could cripple consumer spending — a bad sign for small businesses who have already been complaining of low customer demand.

    • Capital gains rates increased: While dividend rates didn’t tick up nearly as much as the White House had hoped, capital gains and dividends did slightly increase to 20 percent for high-income earners, which entre­pre­neur­ship advocates fear could deter some investments in new and growing firms.

    The bottom line is if you’re an entrepreneur or small business owner, you’re encouraged to stay on top of this deal and do your research. Do your due diligence and try to understand, as much as possible, potential implications to your business.

    Additionally, I encourage you to review and, where appropriate, adjust your short term and longer term business plan, including your financials. This will enable you to manage your business in an effective manner.

    Again, this is a critical piece of legislation and I encourage you to stay on top of this developing story.

    Mark S. Lee can be reached at mark@leegroupinnovation.com or follow him at Linked In, Twitter or Facebook.

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