August 7, 2012
By: Melanie Berkowitz, Esq.
Parties debate effect of tax cuts on small business. With the presidential elections quickly approaching, both candidates are stumping hard on the issue of taxes. At issue are Bush-era tax cuts that are set to expire at the end of the year, unless Congress acts to extend them.
While President Obama favors extending all of the tax cuts except for those intended for the top two tiers of individual tax payers, opponents contend that this move will hurt many small businesses.
On July 26, the Senate voted to renew the middle-class tax cuts but did not address the expiring cuts for the top two tiers of taxpayers. Now the matter moves to the House, where the Republican-controlled House has introduced its own legislation aimed at preserving all of the tax-cuts for all levels of taxpayers.
While opponents contend that Obama’s plan will hurt small businesses, the issue is more detailed. It is true that many smaller businesses pay taxes under the individual tax code as so-called “S Corporations” or partnerships, but these entities also include most of the country’s largest law firms and financial firms.
In analyzing Obama’s tax proposal, the non-partisan Joint Committee on Taxation predicts that only 3% of all businesses that file under the individual tax code -- those that earn more than $250,000 per year -- will be affected if the top two levels of tax cuts are allowed to expire. The majority of small businesses will continue to take advantage of tax cuts for lesser-earning individuals and entities.
Choosing not to choose the Affordable Care Act. Now that the Supreme Court has upheld the constitutionality of the Affordable Care Act, all businesses with more than 50 employees should be investigating how to offer health insurance to their employees -- right? Maybe not.
With the promise of low-cost health insurance exchanges from the states, some businesses are crunching the numbers to see if it is more cost-effective to forgo providing a health plan and instead pay the penalty for non-compliance.
While making such a choice can affect more than the bottom line -- employers need to consider the effect of such a decision on employee retention and morale -- it may be a viable option, particularly for those companies whose workforce hovers right around the 50 employee mark.
Tax-free days may be ending for Internet shoppers. Savvy shoppers have long known that they can usually avoid paying sales tax by buying on-line instead of from traditional brick-and-mortar stores. But a bill currently making its way through Congress may change all that. The Online Marketplace Fairness Act would allow states to collect sales taxes for online purchases made by consumers.
While supporters say that the law would level the playing field by equalizing the price of items bought over the Internet versus from a physical store, others argue that small businesses may suffer the most if the measure passes.
An online presence is often the only way smaller businesses can compete with the “big-box” retailers, which often have to pay sales tax in most jurisdictions anyway. If these small businesses are forced to charge a sales tax, the argument goes, they will not be able to earn enough revenue to survive.