With the election over, many small businesses are now looking to see what’s going to happen on Capitol Hill by way of tax reform. Central here is the looming fiscal cliff, where over $600 billion in tax hikes and spending cuts across the board are set to go into effect on January 1, 2013 if a deal cannot be forged between leaders of both parties. The tax hikes are expected to hit the small business community very hard. According to many financial experts who have made projections on the potential impact of this so-called fiscal cliff, the tax burden of a self-employed individual with an annual income of $60,000 to $88,000 will increase anywhere between $2,700 and $3,700 a year for 2013: a staggering amount for many, as this could end up equaling an entire month’s salary.
According to a tax reform survey released last week by the National Association for the Self-Employed (NASE), 82 percent of those surveyed considered Congress addressing both comprehensive individual and corporate tax reform to be “very important,” with 78 percent citing tax reform as the “highest priority.” Essentially, 300 NASE members participated in this survey, all either being self-employed or owning a business that employs 10 or fewer.
So what are small business owners and the self-employed looking for when it comes to tax reform? According to the NASE survey, nearly half of respondents are hoping for a one-year extension of current tax rates for those households whose annual income is under $250,000, while 34 percent support a one-year extension for all income brackets. Only 7.6 percent of the small business owners surveyed did not support a one-year extension under any circumstances.
Interestingly, the majority of small business owners (at 61 percent) would be open to an elimination of some of the most popular tax deductions (such as health care, mortgage interest, and contributions to retirement accounts) if current tax rates were to stay in place. In terms of increasing the corporate tax rate to reduce the individual tax rate, business owners were basically divided, with 35 percent against this proposal, 26 percent for it, and over a third saying it would depend on the specific level of increase/decrease. These are but two of the compromises that is being seriously considered by leaders in Washington.
Munk, Cheryl Winokur. “Tax Reform a Priority for Small Business Owners” Entrepreneur. 11/15/12