March 13, 2013 /24-7PressRelease/
-- 2013 tax changes may spell confusion for small business owners
Article provided by The Gartzman Law Firm, P.C.
Visit us at http://www.gartzmantaxlaw.com
After a no small amount of last-minute scrambling to avert the so-called fiscal cliff, Congress recently passed a number of changes to the federal tax code. Some of these changes, both good and bad, could have a significant impact on small business owners.
While the potential for increased tax liability under the new plan is a major concern for many small business owners, some say the real challenge will be keeping track of the changes and staying in compliance with new and unfamiliar regulations. Furthermore, because many of the business tax provisions enacted this year are temporary, the uncertainty may continue indefinitely. As one executive for a major tax services firm told the New York Times, "We moved from the fiscal cliff to a fiscal minefield."
Higher costs for some companies
Following the expiration of a two-year payroll tax reduction at the end of 2012, employers now must withhold an additional two percentage points from their workers' wages. Some businesses will also be required to deduct more from employees' paychecks to account for higher Medicare and income tax rates for high earners, which went into effect on January 1, 2013.
Owners of C-corporations, who frequently elect to pay themselves in dividends rather than salaries, may also see their tax liability increase as a result of a hike in tax rates on dividends for taxpayers whose incomes exceed a certain threshold.
Depending on the circumstances, the increased tax rate on dividends may cause the C-corporation business structure to be less desirable for some small business owners than in the past. For new business startups, these changes may complicate the process of determining which business entity to use, since optimizing the tax efficiency of a prospective business is often a major priority for entrepreneurs.
New and renewed business benefits
While the legislation may trigger increased tax liability for some, the news is not all bad for small business owners. For instance, along with tax increases in certain areas, Congress also carried over, reinstated or expanded several tax deductions and credits that are beneficial to small businesses -- such as the Work Opportunities Credit, which was reinstated and made retroactive to apply to 2012. The credit, which benefits businesses that employ military veterans, ex-felons and those coming off government assistance, had previously been eliminated for all workers except veterans.
The IRS may impose steep penalties on businesses that fail to comply with the tax code -- even when the regulations are unclear or confusing. Therefore, it is important for business owners to seek help from a knowledgeable tax attorney any time that questions about tax liability or compliance arise.---
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