Small Business and Taxes in 2012
As a general rule, Republicans are against raising taxes while Democrats are in favor. Under our current Democratic Congress and Presidency, taxes have become more complicated for small business owners, and will continue on the current trend if Barack Obama is elected for a second term. Consider the following trends to be the norm if a Republican president is not nominated in 2012.
- Complexity of taxation is on the rise.
The United States tax system grows more complex with the addition of new tax rules in 2012 as other governments around the world are reforming. Unfortunately this turns the foreign capital back elsewhere. Small business companies in the United States will have to rely on President Obama’s recent loan incentives for now if they’re looking for startup money.
- The impact of lower tax rates.
There is much less incentive recently to avoid the penalties imposed by the IRS due to the low interst rates on small businesses. If you are a limited liability company paying income tax on a share of business profits you’ll end up paying less estimated tax on the personal return. Though this could result on a penalty of three percent for underpayment, the amount is small next to the value of retaining money that could be used for cash flow.
- Unemployment taxes rising on employers.
Employers for about half the states will be paying higher FUTA taxes. As most states borrowed from the federal government to pay unemploymet benefits, and have yet to pay it back, the business owner is sharing the burden of the bill. Expect problems with FUTA liability credits because of this.
- Extension of some business tax rules.
Many of the Bush era tax rules have expired at the end of 2011. Small business owners may see favorable extentions through 2012 as there is bipartisan support for small business tax relief in Congress.
- States are desperate for fresh revenue.
As federal support for states wanes local governments are searching for creative ways to raise money. Unfortunately more and more states are taking risks with gambling institutions and legalizing marijuana. While deregulating these vices brings in quick revenue, it will drain small businesses in time.
- Health care remains uncertain.
By June of 2012 the fate of the Patient Protection and Affordable Health Care Act will be decided. The biggest incentive for small business owners under “Obamacare” is the creation of a small business tax to help pay for employee heath care coverage. Most politicians agree that the plan will fail. Small business owners are hesitant to sign up, and must still comply with current laws in the meantime.
- More tax audits are being handed out to business owners.
State and federal tax disputes are rising. The Department of Labor and the IRS are continuing to use popular audits on owners and handing out tax disputes to tie down corporate excecutives. The sharing of information is becoming more frustrating as the tax code becomes more complex year after year. Small business owners are being forced to keep their books cleaner this year while dealing with stricter regulations.