Download WHAT DOES THE FISCAL CLIFF SOLUTION MEAN TO SMALL

WHAT DOES THE FISCAL CLIFF SOLUTION MEAN TO SMALL & MEDIUM SIZED BUSINESSES?
The recently passed fiscal cliff solution passed by the
Senate and House essentially kicks the can down the
road for Q1 2013. It does not address the government
debt limit, reducing debt nor address the automatic
spending cuts other than postponement for two months.
The majority of small and medium sized businesses
operate as S corporations and LLCs; thus this discussion
focuses on the tax changes for individual taxpayers
rather than corporations.
NEW TAX IMPACT
Top tax rate1
Estate tax
Capital gains tax
Dividend tax
Payroll tax
ObamaCare payroll tax
2012
35%
35
15
15
10.4
0
2013
41%2
403
23.84
23.84
12.4
0.95
Notes:
1. Above $400,000 for singles, $450,000 for joint filers.
2. Includes new phase out for various deductions.
3. Exemption remains $5 million.
4. Includes ObamaCare 3.8% investment income surtax.
5. Income above $200,000 for singles and $250,000 for joint filers.
Source: U.S. Senate
Essentially with surtaxes added and phase out of
deductions, business owners with adjusted gross income
above $400,000 will be facing a maximum tax rate of
about 46%. There is some good news for most tax filers
in that Congress finally indexed the Alternative
Minimum Tax tables which will allow many of the
middle class to now avoid the additional tax.
For most business owners, the impact of the Affordable
Care Act is still unknown as it will take full effect
January 1, 2014. Key factors are:
1. For companies of 50 employees or more, the
cost of employee health care is expected to
increase by at least 33% on 1-1-2014.
2. The number of employees will be based on 30
hours per week thus expanding eligibility.
3. The number for qualifying employee count is
based on hours, W-2s and 1099s issued rather
than headcount.
4. Companies with high turnover, part-time
employees will be penalized in the calculations.
The near term result for small and medium sized
businesses is the same for all businesses…continued
uncertainty. The current consensus among economists is
that the impact to the 2013 U.S. GDP is likely to reduce
growth by 0.5 percent yet they still see growth in the
economy this year.
NEXT STEPS FOR THE BUSINESS OWNER
This new bill represents the largest tax increase in the
past two decades and requires planning rather than panic.
The next steps to preserving your business are:
1. Consult your tax planner to determine how to
minimize your potential tax liability. (There are
enough known facts now to start a plan.)
2. Consult with your employee benefits advisor on
the latest information for changing healthcare
plans.
3. Model these impacts into an operating forecast
and cash flow to determine what operations
changes are needed after getting data on items 2
and 3 above.
4. Review these plans with your banker or other
funding sources to show them that your business
is viable.
5. Watch vigilantly the battle that will ensue over
the government debt limit, spending cuts and
other political battles to determine what impact
might be specific to your industry.
C Squared Solutions offers consultation on accounting,
financial, transactional, operational and financial/IT
systems issues to all size firms around the World. We
provide extensive financial models to plan and operate
your business.
Contact us for further information on how to identify
and resolve issues affecting your organization.
1624 Market St., Suite 202, Denver, CO 80202 www.c2solves.com (303) 417-6353