Small Business Taxes & ManagementTM--Copyright 2012, A/N Group, Inc.
The Treasury has released the General Explanations of the Administration's Fiscal Year 2013 Revenue Proposals or Greenbook. While there are many income (and some estate tax) proposals, many have been mentioned in passing or have been advanced in prior legislation. We'll highlight some of the changes that would impact individuals and small business owners, concentrating on those that stand a better chance of passage. You can download the full copy of the Greenbook at www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2013.pdf.
Temporary Tax Relief to Create Jobs
Proposals here include:
Also mentioned are tax credits for investment in qualified property used in an advanced energy manufacturing project and a tax credit for energy efficient commercial buildings.
Tax Cuts for Families and Individuals
Expanding Manufacturing, Insourcing Jobs, and Small Business Tax Relief
There are several proposals for expanding manufacturing and keeping jobs in America. They include a new manufacturing communities tax credit, incentives for locating jobs in the U.S. and disincentives for oursourcing them and certain tax credits related to energy projects. Additional proposals would extend and modify the New Markets Tax Credit as well as reform and expand the Low-Income Housing Credit.
Small business relief includes elimination of capital gains taxation on investments in small business stock, a doubling of the amount that can be expensed for startups, and an expansion and simplification of the tax credit for non-elective contributions to health insurance by employers.
Upper-Income Tax Provisions
These provisions are the ones of most concern to upper-income taxpayers. Basically, they would sunset the Bush tax cuts for those with income in excess of $250,000 ($200,000 for singles). They would:
The last change would cap tax benefits such as employer-provided health insurance, the exclusion for municipal bond interest, moving expenses, certain trade or business deductions of employees, etc. to a 28% rate rather than have them valued at higher tax rates.
Note that these provisions would only apply to taxpayers with incomes in excess of $250,000 ($200,000 for singles).
Estate and Gift Tax Provisions
These provisions would:
Other provisions include reformation of the U.S. international tax system that would close loopholes such as limit shifting of income through intangible property transfers, eliminate fossil fuel preferences by repealing certain credits for oil and gas production, expensing of intangible drilling costs, expensing of exploration and development costs, and repeal of capital gains treatment for royalties.
The provisions include a number of loophole closers such as repeal of last-in, first out (LIFO) and lower-of-cost-or-market (LCM) inventory accounting, tax carried profits interests as ordinary income, deny a deduction for punitive damages, and elimination of special depreciation rules for general aviation aircraft.
There are also a number of provisions aimed at reducing the tax gap, improving compliance, etc. and simplifying certain aspects of the tax code. One of interest to small businesses would increase the certainty with respect to worker classification (employee vs. independent contractor).
With the current divisions in Congress it's likely few of these provisions will pass. And that's without an attack by lobbyists. On the other hand, as some professionals have indicated, we can't cut our way out of the deficit. And that's not just because it would be so painful. We may be able to do without Saturday mail delivery or even live with mail 3 days a week, and we can stop all funding of public broadcasting and the arts. But deep cuts would materially impact the economy. In addition, there aren't enough discretionary programs that can be cut.
More than likely, some of the Bush tax cuts will have to be modified. Higher rates? Very possible, but probably the $250,000 threshold mentioned above will be higher, maybe $500,000 or $1 million. There's a strong possibility that dividends and long-term capital gains won't enjoy the status they now do, but they will still fare better than ordinary income. Small business owners are likely to be favored in some form.
The bottom line is higher taxes are very likely to go up in the near future. In 2013? Maybe. Increases taking effect in 2012? Probably not, although some focused changes are possible. The real problem is without action by Congress the Bush cuts will expire at the end of the year. That could happen because inaction seems to be what Congress is best at. It's too early to plan, but it's hard to believe rates and certain benefits will be better next year.
Copyright 2012 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Articles in this publication are not intended to be used, and cannot be used, for the purpose of avoiding accuracy-related penalties that may be imposed on a taxpayer. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 02/14/12