Regulatory changes for small business in 2013

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.

Simplify your finances

The task of managing one's finances efficiently is very important.  This can be done by streamlining various aspects of financial management.

Investments:

·         Consolidate old retirement accounts

Rolling up multiple retirement accounts into one or two IRAs is a safe bet as fewer accounts mean fewer statements up for review, saving time. This reduces the paperwork and allows for easier control of one's investments with help from a financial advisor.

·         Automate the investment process- put the savings on autopilot

The most difficult part about saving is actually setting aside the money and transferring it into an investment account. An automated system to take out savings from every month and automatic money transfers from the bank account to the investment account will help keep the investment plan on track and not fritter away the money on something else.

Banking:

·         Automate payroll deposits

Using direct deposits for all income (salary, pension, social security payments etc) eliminates needless trips to the bank. Recipients of federal benefits can switch to direct deposit or a pre-paid debit card in case they are currently receiving paper checks.

·         Sign up for email / mobile alerts

With email / mobile alerts, the individual will receive immediate notification from the bank when the account balance drops below a certain amount or when credits or debits happen.

Spending:

·         Pay bills online/use auto pay options

Opt for automatic bill payments so that the hassle of writing a check and posting it is avoided. Better, if automatic payments are not preferred, one can still manually authorize electronic payments from a bank account or credit card. The online bill payment mode helps streamline bookkeeping activities.

·         Use fewer credit cards

With multiple credit cards, one runs the risk of overlooking payments on time for a few of them, thereby attracting late fees and heavy interest payments, having a negative impact on the credit score. Hold on to the oldest card as it improves the credit score. Fewer credit cards mean a lighter load on the wallet of course.

·         Draw up a durable power of attorney

A durable power of attorney drawn up by a lawyer will permit a trustworthy person to safeguard assets and pay bills in case of sickness and subsequent inability to manage money matters.

Taxes:

·         Keep records organized

Keeping records organized throughout the year can help simplify the preparation of tax returns. Place receipts and other documents in support of income and deductions in a safe box. Using personal finance software is a high-tech way of tracking expenses and income.

·         Direct deposit of refunds

Providing directions on the tax return for refunds to be directly deposited into bank accounts is a good way of receiving the tax refund faster and saving time going to the bank and putting up a check for collection.

·         Hire a Tax Specialist

Unless the return is a straight forward one and easy to do by self, take the help of a specialist such as a CPA or EA to prepare and file it. With a tax specialist on hire, access to year-round tax planning advice is assured, ensuring reduction in taxes and avoidance of costly tax mistakes or penalties.