Even though the White House and Congress came to an agreement to avoid the fiscal cliff as 2013 approached, there are still many issues and challenges ahead to get the U.S. economy back on track.  What the compromise bill did was block most impending tax increases and postponed spending cuts; however it left a number of issues unresolved.  One group that faces challenges because of these delayed decisions is small businesses.

Many small business owners who claim their business profits on their personal income taxes (LLCs, S Corps, etc.) will most likely become affected by the higher tax rates.  In the compromise between the White House and Congress, it called for taxes to rise from 35% to 39.6% on personal income above $400,000. According to a Vistage polling in December, 29% of small firms planned to hire fewer workers in anticipation of the tax increases and spending cuts.  The Wall Street Journal stated, “Some business owners may explore strategies for lowering taxable income, such as maximizing their contributions to their retirement funds and matching employees’ contributions to 401(k) plans”. These added tax bills can potentially prevent owners from offering employees raises and profit-sharing.

Aside from tax increases, small business owners also have challenges to face when it comes to health-care.  Under the new rules of the 2010 health-care overhaul law, owners now have just 12 months to prepare for these changes.  This law requires small business owners with 50 or more full-time workers to offer health insurance by 2014 or face the risk of paying a penalty.  This new law leaves many small business owners asking questions such as how to meet the law’s minimum requirements and the exact requirements that qualifies someone as an employee of the company.

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However, along with these negatives, there are positives as well.   For those small businesses debating equipment purchases, the bonus depreciation allowance was extended through the end of 2013.  This allowance affords businesses that purchase new equipment, more working capital by allowing them to deduct a greater percentage of the purchase.  Under the new allowance, businesses will be able to write off 60 % of the purchase, freeing up capital for other uses. 

While these are just a few of the pros and cons of the fiscal cliff, there is certainly a lot to take in to consideration for small businesses.  It is a matter of adjusting to these various changes and making the best decisions for yourself and your business.  These decisions need to be well thought out and planned for in 2013.

I would like to thank Caroline Ryder for preparing this article with me. Caroline is a Marketing Analyst with C2G Resourcing, a subsidiary of Consultants 2 Go, LLC. Don’t forget, you can email me at Peggy@Consultants2Go.com with any questions you might have and I’ll be glad to answer them. You can also follow me and my business on Twitter @peggymchale and @consultants2go