For those small business owners who haven’t been keeping up with the specific taxes that are set to increase if Congress doesn’t act before January 1, 2013, check this out.
In 2010, the tax cuts of 2001 and 2003 were given a 2-year renewal by Congress, which means they will expire at the end of this year. If they are not further renewed, tax rates will return to pre-2001 number, which equates to an increase.
The U.S. Chamber of Commerce recently provided details about the taxes that will increase and how they will effect the economy. Outlook, not so good.
- Long-term capital gains tax will return to 20 percent (from 15 percent).
- The 10 percent tax bracket will change to 15 percent.
- Standard deduction for married couples will no longer be double that of single filers.
- The child tax credit will fall from $1,000 to $500.
- Marginal tax rates will increase 3-5 percent.
- Taxes on qualified dividends will increase from 15 percent to ordinary wage tax rates.
Economic experts have projected the impact the lack of renewal will have on growth, jobs and small businesses.
In a July 2012, Ernst & Young conducted a study to determine the impact the tax increase would have over the long term for high-income tax payers. So according to the study, raising taxes for those Americans with wages higher than $250,000 will result in the following, not-so-good, news.
- Expect 710,000 fewer jobs
- 1.8 percent lower wages
- Fewer investments – 2.4 percent less
- The economy will shrink by 1.3 percent
According to a study by Doug Holtz-Eakin at the American Action Forum, if the tax cuts are not renewed, the resulting increase would hurt small businesses directly, such as:
- A .6 percent drop in GDP will increase unemployment by two percent (an additional 2.8 million unemployed).
- The higher marginal tax rates would reduce the likelihood that small businesses would increase their staff, thus reducing payroll growth by more than 5 percent.
- Capital outlays and expansion will be substantially reduced by 20 percent and 15 percent respectively.
To be forewarned is to be forearmed, so now is the time to take action steps that stabilize your small business for the short and long term. Develop marketing and pricing strategies that will accommodate the potentially shrinking dollar in interesting ways that continue to attract new and existing customers.