Dealer Outlook

Trade Only Dealer Outlook Blog

Some new taxes flying below the radar

If you tune into the Republican National Convention tonight, you’ll likely hear a call to reduce taxes — something we all might like to see happen. Will it? Perhaps. But there are potential tax increases that aren’t getting much attention.

The media focus today, of course, is all about the “Bush-era tax cuts” and their expiration at the end of the year. If allowed to happen, virtually every taxpayer will see a 3 percent increase on most rates in 2013. The highest earners (individuals topping $388,350) will face a 4.6 percent increase, up from 35 percent to 39.6 percent. Little wonder the U.S. Chamber of Commerce reports the major concern being raised by the overwhelming majority of small businesses is that Congress will fail to act to prevent it from happening.

Not getting any news coverage, however, are other tax changes that will impact us as small-business owners. For example, the extension of the payroll tax holiday that President Obama signed will end this year. It will take congressional action to avoid seeing employee payroll taxes rise from 4.2 percent to 6.2 percent. That’s for traditional employers paying half the payroll taxes on behalf of their employees. However, the 2 percent really doubles to a 4 percent tax hike for any small-business owner who pays the self-employment tax because, if that’s you, you have to pay both the employer and employee portions. Either way, it will hit small business owners on Jan. 1, just four months from now.

Another tax being ignored is the Alternative Minimum Tax. The AMT was created to make it mandatory that “the rich” pay taxes even if they have reduced their tax bill with myriad available deductions. However, the AMT also directly impacts S corporations, partnerships and LLCs. What it does is take away a lot of deductions and imposes a tax of either 26 percent or 28 percent — whichever is greater.

The AMT, as a practical matter, is about to hit taxpayers earning about $150,000 and up. That’s because one of the huge problems with the AMT is that the threshold has not been adjusted for inflation. The reality, according to the Joint Committee on Taxation, is the AMT will hit 31 million taxpayers in 2012.

Finally, how about the enhanced tax deduction for the acquisition of business equipment? Essentially, it’s currently helping small businesses purchase equipment by allowing an immediate tax deduction of 50 percent of the equipment cost and it counts as depreciation. But, on Jan. 1, this accelerated depreciation will end and go back to the traditional formula that limits businesses to deducting the cost of the equipment over its usable lifespan, usually seven to 10 years. Accordingly, it might be best to buy needed equipment this year given the possible end to this tax provision.

Talk about uncertainty. It’s not just a problem for small-business owners trying to predict the future for possible growth and expansion. Clearly, this kind of unknown also affects consumers considering big-ticket purchases. While we’re not in control of the consumer’s response to such uncertainty, right now as businessmen, we should be developing possible responses and actions to be taken depending on what happens, or doesn’t happen, in the next four months. It will avoid both surprises as well as regretting missed opportunities later.

Comments

4 comments on “Some new taxes flying below the radar

  1. LARRY

    THANKS FOR THE INFO NORM. I AGREE THAT PERHAPS IT MAY BE TIME TO MAKE SOME UPGRADES AND BUY NEW NEEDED EQUIP BEFORE DEAD LINE. FINDING FUNDS TO DO IT IS ANOTHER ISSUE THOUGH.
    SOME THINGS ARE BECOMING INEVITABLE, AND EVENTUALLY WE WILL END PAYING THE PIPER, WE ALL HAVE TO FACE THIS REALITY.
    WHAT ELSE IS NEW? SMALL BUSINESSES ARE MANY TIMES HIT THE HARDEST, A HABIT OF “NICKEL AND DIMING” US BY GOVT. IS SOMETHING WE SHOULD BE USED TO BY NOW, OF COURSE NOBODY LIKES IT, WE DON’T HAVE THE LEEWAY SOME OF THE BIG BOYS WHO TAKE BIZ AND JOBS OUT OF THE COUNTRY, WHICH I FEEL SHOULD BE ALSO HIT SOMEHOW, AND IT IS ABOUT TIME, IMPORT DUTY IS NOT ENOUGH, I FEEL IF YOU EXPORT JOBS, YOU SHOULD PAY SOME SORT OF PENALTY, PERHAPS THIS COULD ALLEVIATE SOME OF THE PROBLEMS. VERY FRUSTRATING, HECK, DON’T THINK THERE IS AN EASY SOLUTION….. JUST PAY IT!

  2. Don

    Well, Larry, mind if I use your checkbook ?
    In 2003 we undertook a major rehab and additions to our marina. We built new rack buildings and service facilities. We upgraded our showroom and office facilities. We did all this encouraged in part by the Bush tax incentives. With some clever engineering, we were able to design buildings that maximized our abiltiy to rapidly deduct many components of this project. The project took over a year to complete.
    We all know what happened next with the economy and boat sales. The project actually helped us in transitioning to service for the bulk of our income during these past years. We have always been heavy in service, so we knew what we had to do. We have created some new jobs in the process.
    Making the decision to grow when the economy is turning up and favorable business tax laws are being implemented, make it a no brainer to invest in bricks and mortar and jobs. When you look at the reality of what’s going on right now and the deliberate uncertainty the leadership has created regarding tax incentives, etc. then it can only lead to the decision to wait and see.
    Many of our customers work either directly or indirectly for major US corporations with overseas divisions. An executive with a well know US corp. recently told me that they had over three and one half billion dollars in cash sitting outside the country. This is money that they would like to bring back here and create jobs and additional products, as well as make them more competitive in the market place. Unfortunately the taxes payable on such a huge amount of cash would only give a warm feeling to the taxers and spenders and leave very little to grow business. These companies aren’t foolish. Don’t blame the big corporations, They are only doing what you or I would have to do, given the same choice … wait and see.
    Most liberal, big government people really have no idea where the money comes from, hence the belief that somehow the government built my and your business. The easy solution is to just lay back and pay whatever the tax bill. The difficult way would be to take the reighns of this runaway spending horse and get it back on the path of prosperity. We did build our businesses and roads and trains, homes, schools and on and on. No government ever turned a dollar’s profit. They don’t know how because they are not you and me. Let’s show them how. Don’t give up on yourself and your fellow business owner. We need to send the message of confidence and deliver it with a reason to be confident. Let’s make that change right now ! Vote well and vote often !!

  3. enginecom

    It’s the Senate that’s doing zippo. The Republican house already had submitted bills for extending the tax cuts but didn’t include an exclusion for the so called rich. Harry Reid shelved it because Obama objected to the income limits. The only way to get these extended it to clean house in the Senate putting pro business senators in power. That would mean a Republican majority. Getting rid of Obama who obviously thinks we didn’t built our businesses is paramount to maintaining the current taxing levels. I will vote for the Mormon for POTUS not vote to reelect the Moron.

Leave a Reply

Your email address will not be published. Required fields are marked *

Comments are moderated and generally will be posted if they are on-topic and not abusive. For more information, please see our Comments Policy.