The calendar won't be the only thing changing for small businesses this New Year. Small businesses will have to look out for regulatory changes in 2013 that will change the way they operate. These potential regulatory norms would require significant adjustments to the way the businesses operate.
Changes in Tax Rates
A majority of small businesses are organized in such a way that revenues are taxed at the individual rate instead of the corporate rate. Without action from the federal government, the expiring tax cuts will increase individual tax rates in 2013, resulting in a tax rate hike for many small businesses. In addition, the capital gains rate would also increase. Gains on assets held longer than a year would be taxed at 20 percent instead of the present 15 percent for middle-income and upper-income taxpayers. The rate for lower income taxpayers would rise to ten percent from zero.
If the current tax cuts are allowed to expire, businesses will also face a decrease in allowable expenses and real property will no longer be included. The start-up deduction for businesses will also be reduced from $10,000 to $5,000. For business owners looking to leave their business assets to their heirs, or for those who may inherit assets, the maximum estate tax rate would increase from 35 percent to 55 percent. At the same time, the maximum exemption would decrease to $1 million from $5 million.
In addition to these, the steady increase in cyber frauds, impending immigration and healthcare reforms make it imperative for small businesses to have adequate checks and balances in place.
How to reduce taxes?
The easiest way to reduce income taxes is to either increase deductions or defer income. Small business owners can increase deductions in a variety of ways, including purchasing supplies and equipment before the end of the year to be used in the future. Paying bills early, prepaying for maintenance and subscription plans and making charitable donations can prove significant if done before the end of the year. On the basis of accounting method used, business owners can also depreciate assets to create additional deductions.
Small business owners can defer income by contributing to qualified retirement plans such as 401(k), IRA & SEP accounts before the end of the year. Some types of investments, like annuities, also allow investors to defer taxes. Investors avoid paying federal income taxes on the principle and interest until they withdraw the money.
A sound business recovery and continuity program is a must. Emphasis must be laid on key vendors having adequate processes to ensure uninterrupted service in the event of extreme weather or other unforeseen circumstances. Critical documents like tax returns and other financial documents must be maintained at alternative locations for protection and adherence to retention guidelines.
Professional help can help facilitate these proceedings
A certified tax & accounts outsourcing service provider can be a valuable professional resource, particularly when it comes to helping business owners identify and take advantage of opportunities to reduce their income tax burden. In addition to providing guidance and expertise regarding qualified retirement accounts and strategies for deferring income, they can help small business owners manage cash flow, plan for growth, and mitigate risk.
How are you preparing your small business for the looming tax changes? Have you considered outsourcing solutions to help your small business get through with minimal financial losses?
A professional outsourcing company like GKM can help you make sound decisions that benefit both your business and personal interests.