How does Obama’s tax plan effect small business?
Posted by Jason Kruger on November 26, 2008 in Financial Services [ 0 Comments ]
Now that the November elections have come to a close and all of the politicking is over, we can finally sit back and divulge or at least try to comprehend what changes might be in store for us in the coming years. As you would expect, local, regional, and global tax and professional service firms are diving into any information that is available in an attempt to predict what the country’s income tax future may hold. One of the most recognizable and respected firms is that of the Tax Policy Group of Deloitte Tax LLP, in Washington, D.C. Recently, this group issued “Tax policy decisions ahead – President-elect Obama’s call for change”, which focuses on the President-elect’s likely tax agenda for 2009 and 2010. According to the Deloitte study, the likely agenda for 2009 and 2010, “may unfold in two distinct pieces. The first could be tax cuts focused on economic recovery and other stimulus actions meant to address the current economic downturn. The second could be a package of tax proposals to address the longer-term issues that were raised in the campaign.” Now that we have a very broad understanding of the agenda, what does this actually mean to small business, referred by many as the “backbone” of the economy? Let’s take a look.
The Deloitte study categorizes Obama’s business tax strategy into four broad themes. They are the following:
- Protecting and growing U.S. jobs;
- Changing how we produce and use energy;
- Restoring “fairness” to the tax code; and
- Providing quality health care.
Let’s take a further look into the categories that will have the largest impact on small businesses, “Protecting and growing U.S. jobs” and “Providing quality health care”.
-Protecting and growing U.S. jobs
President-elect Obama ran a campaign that strongly endorsed creating incentives to companies for maintaining jobs in the U.S. and limiting benefits of companies that ship jobs overseas. Based on the Deloitte study, we can come to the conclusion that there are several key incentives for small businesses as well. These include proposals to:
- Reduce the corporate tax rate for companies that start or expand operations domestically;
- Elimination of all capital gains taxes on small business investments and for startups;
- New American Jobs Tax Credit during 2009 and 2010 that would provide existing businesses that make net additions to their U.S. workforce a $3,000 refundable tax credit for each additional full-time employee hired. President-elect Obama has also proposed to extend the temporary increase in the small business expensing allowance to $250,000 through 2009.
-Providing quality health care
We have also seen President-elect Obama call for health care reform throughout his campaign. Based on the Deloitte study, most of the reform that Obama is referring to will impact the economy’s larger employers. According to the Deloitte study, Obama’s changes would create a potential mandatory contribution to the National Health Insurance Exchange for those large employers that do not offer or make a meaningful contribution to the cost of health care to their employees. Obama’s plan, however, would exempt small businesses from this requirement and they would receive a new Small Business Health Tax Credit intended to reduce their health care costs.
Now that we have an idea as to the basics surrounding Obama’s tax plan as it relates to small business, we should also quickly consider its impact on the small business owner. The good news is that if you are a single small business owner that makes less than $200,000 or married making less than $250,000, your benefits are preserved and most likely, your taxes will not increase. However, once above those thresholds, there is the possibility that taxes will increase for the higher tax brackets. There have been recent discussions that suggest that Obama will not be making any changes to the existing tax structure in 2009 and will instead wait until the Bush tax plan expires in 2010. There is fear that the sluggish economy will take longer to recover if taxes are raised at any level. These questions will most likely be answered fairly shortly after the President-elect takes office. As a San Diego accounting firm, we can recommend that it is always best to consult with your tax advisor over any questions that you may have. In San Diego alone, there are plenty of San Diego accountants, CPAs, and accounting firms of which to choose from.
The common perception among small business owners is that the tax environment proves more challenging with a Democratic President in office. However, with the current state of the economy, the President and Congress will be hesitant to raise taxes on the economy’s “backbone”. As a result, small businesses may catch a break… in the short term.