According to the most recent U.S.
According to the most recent U.S. Census data, one in eight small business owners are over the age of 65. For those ‘senior’ business owners, that can mean some pretty hefty financial consequences should the answers to the fiscal cliff crisis reside inside so-called ‘entitlement programs’ like Medicare and Medicaid, say many small business owners. Not only are these senior citizens using entitlement programs, they are also small business owners. One serious illness or injury can mean all the difference between keeping their small business’ doors open and losing everything in order to pay medical bills. Not only are these older Americans at risk themselves, but “they represent a strong base of consumers on which small businesses rely.”
What should you know about the fiscal cliff?
1. Certain provisions of the Small Business Jobs Act of 2010 allowed small business owners to deduct the cost of health insurance coverage for themselves and their employees. This provision will disappear unless changes are implemented by Congress.
2. Section 179 deductions, which have steadily increased over the last four years will revert back to their Pre-President Obama rates and the allowance for real property to be included in the deduction will also be eliminated.
3. PPACA imposes a $2,500 limit on flexible savings account (FSAs)
4. If your small business itemizes state and/or local sales taxes, say goodbye to that deduction in 2013.
5. Small business owners who started a business in 2011 or 2012 enjoyed a $10,000 start-up deduction. Looking forward to 2013, that deduction will reduce back to $5,000 for new business expenses like marketing, advertising, licenses, permits, training and even rent.
6. The dreaded Alternative Minimum Tax, or AMT, will be back with a vengeance. With even greater powers to expand the tax liability of small business, the AMT will revert from its 2012 exemption of $74,450 for joint filers and $48,450 for individuals to just $45,000 for joint filers and $33,750 for individuals. With much of small business income flowing through individual business owners, this tax shift will be a substantial hit on the bottom line of many small business owners.
7. Increase in the individual income tax rates are set to take effect at the end of December 2012. Under current law, the tax rates are 10%, 15%, 28%, 33% and 35%. Without an adjustment by Congress, these rates will increase to 15%, 28%, 31%, 36% and 39.6% respectively. Additionally, the amount being taken out of your employee’s paychecks will also increase as the employee’s share of Social Security payroll taxes will increase from 4.25% to 6.2%. Self-employed business owners will also see a tax increase on the first $110,000 in wages from its reduced amount of 10.4% back to 12.4% in January 2013.
There are more changes scheduled that may impact your individual and your small business tax status. To learn more, talk with a PASBA Small Business Professional by searching for a PASBA member in your area.
PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.
To find a trusted accountant in your area, visit www.SmallBizAccountants.com.
Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.
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