Alright, the cookie has crumbled, and the spending cut as well has hike in taxes have been staved off at least for now. This will probably start the whole debate about how this was not a long term solution, and how what should have been done. It really doesn’t change much, and it’s much better to take out the positive from the legislature and work on that if you are a small business. Like small companies worldwide, there are too many things to be done all the time, and too little time to do that. So let us help you get a perspective on the fiscal deficit bill, and how you can use it to your advantage. Let’s start off with things you would love to hear.
Provisions for Businesses
Most of the existing provisions made for the tax credits are still in place for another year! This means there are ways for you to save your tax and take some concrete steps in taking your business to the next level. Here are a few noteworthy provisions which could come in handy.
Green Energy Provisions: There are around a dozen provisions in the fiscal cliff bill that can give you credits for using green energy compliant vehicles or appliances. As a small business it’s relatively easier to shift to green energy and other environment friendly processes. If you had been waiting for some incentive, this could be it! (Let’s avoid the debate about doing something just for sake of environment, shall we?)
IC-DISC: Yes they could have chosen a different name, but there is not much to complain about it. This particular provision is a standout winner if you are eyeing to improve your after tax income. Many small businesses are based in USA, and are exporting their goods or services to other parts of the world. This provision gives them great incentive to do so. With the credit in IC-DISC, you could end up saving around 50% of the off-shore revenue taxes. If you haven’t been selling offshore, maybe it’s about time you did something about it.
Accelerated Depreciation: If you have been planning to make some long term investments, this is the moment. The deal allows for around 50% of tax credit on property purchased and put in service. So if you have been sitting on some cash wondering what to do with it, a really good idea would be to put it somewhere worthwhile.
Research & Development: A lot of small business owners feel that they cannot compete with superior technology and research that the big boys put in. However the Research & Development credit makes things very fair. What’s more, this credit is also available for investments made in 2013. So plenty of incentive to move up the research and pack in some serious business advantage.
So plenty of things to be happy about. However let’s not forget the central debate. Does the ordinary income affect small businesses? We think it could be more relevant than you think. Now, let’s talk about the pinch of salt with which you have to digest this.
Ordinary Income & Extraordinary Situation
One of the major part of the legislation passed was the hike in the tax rates of those earning more than $400k in a fiscal year personally, or $450k as a couple. This is peculiar because of the fact that many small businesses are in a form of pass through entities. This means any business registered as LLC, or Partnership firm will face the brunt of the hike in tax rate as they could have used the extra revenue for other things. So not very good if you were hoping to get unscathed.
So it seems like not much has changed on the surface, as most of the provisions were already in the place. Perhaps some of them were not permanent, but they certainly did exist. So to sum it up, while it remains to be seen if the bill will be enough, it certainly does more than enough to remind you that there are things you can use to flourish your small business.