In the current tax season, one of the greatest challenges of business, especially in the US, is the inevitable tax increase especially since the government is likely to implement the increases hand in hand with government spending cuts. This situation is causing a high level of uncertainty in business taxes and could potentially have significant repercussions. In view of the uncertainty in this tax season, it is also important for you to understand how various factors may affect your business’ bottom line.
Keeping track of the constantly changing business tax laws and policies can be a major challenge. Nevertheless, it is vital to keep up with tax laws and policies that are likely to affect your business in order to avoid legal problems. On the plus side, proper tracking can help ensure that you claim all the tax credits and deductions that your business is legally eligible for.
The following are some of the factors that are likely to affect your business in the current tax season.
Temporary Extensions of Business Tax Provisions
In 2012, the government extended the Research and Development tax credits for small and medium-sized businesses into 2013. The government also extended The Work Opportunity Tax credit for one year. These tax credit extensions are ultimately likely to result in higher tax rates in the near future and this will affect the profit margins of businesses this tax season.
The Effect of the Inevitable Tax Increases on Ordinary Income
Some of the currently proposed tax increases in the fiscal cliff tax deal will significantly raise the business tax rates of 2013 above the tax rates of 2012 and previous years. Furthermore, under the provision of laws such as The Patient Protection and Affordable Care Act of 2010 (Obamacare), business owners will have to pay higher taxes on ordinary income starting this year. If you are a small business owner, higher ordinary income tax rates may have a significant impact on your profits.
Estate Tax
If you own or manage a family-owned business, it is important to note that the estate tax rose to 40% and is effective starting January 1, 2013. This increase could have a significant effect on your business’ profits.
AMT Limitations
Under the 2012 fiscal cliff tax deal, the combination of the increase in the tax top rates and the AMT tax relief available for businesses is highly advantageous for most businesses. This is mainly because businesses that hitherto were not eligible for tax credits under the AMT limitations of the 2011 tax deal can now take advantage of numerous tax credits such as the Research and Development (R&D) tax credits. In the current tax season, ensure you take advantage of all your business tax credits by consulting a tax accountant who can identify all the business credits of the current tax laws.
Financial Lending and Borrowing Trends
The current business environment is rife with tax increase speculation and uncertainty. Because of this, the business borrowing and lending environment is unlikely to go through any major changes. For instance, business owners are unlikely to increase borrowing due to uncertainty about taxation and health care policies. Similarly, lenders are not likely to liberalize their lending policies in the current economic climate. If this depressed borrowing and lending levels persist, most businesses may have to shelve their expansion plans. The current financial lending trends also make it difficult for some entrepreneurs to get access to capital for new business ventures.
Overall, numerous internal and external factors affect businesses. For your business to grow and achieve satisfactory profit margins, you must invest time in understanding how various legal, political, and economic factors will affect your business this tax season. These factors may affect your business investment options, hiring, and expansion plans.
See Also:
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- The Five Key Investment Criteria
- Building and Managing Your Retirement Portfolio
- Zombies at the Gate
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Joshua Turner is a writer who creates informative articles relating to the field of business. In this article, he offers tax advice and aims to encourage further study through Online Paralegal Degrees.
Image courtesy of Arvind Balaraman / FreeDigitalPhotos.net
