We are a small consulting firm near Des Moines. I have a financial question regarding taxes: What will the effect of the 2013 tax changes have on small business with revenue of less than $1 million?
Tim Plimmer, The Plimmer Group, tplimmer@ theplimmergroup.com
The federal income tax rate increases only affect taxpayers with incomes above $400,000 for single filers and above $450,000 for joint filers. Since a small business with revenue under $1 million is unlikely to exceed these income thresholds, the new federal income tax rates are unlikely to affect your small business.
However, you should pay careful attention to three changes in tax law for 2013 that can affect your small business. First, the Social Security payroll tax paid by employees increases from 4.2 percent to 6.2 percent on the first $113,300 of a worker’s wages. The Self-Employment Contribution Tax rate similarly increases from 13.3 percent to 15.3 percent.
Secondly, Section 179 expensing for new investments up to $500,000 was extended through the end of 2013. Section 179 allows the expensing of investments in qualifying equipment, machinery and certain vehicles and software. Some small businesses may want to pull investments forward from 2014 into 2013 to take advantage of Section 179 expensing in 2013.
Finally, the Alternative Minimum Tax (AMT) had a dramatic increase in its exemptions to $50,600 for single filers and $78,750 for joint filers. For the first time, the AMT is indexed for inflation. Many middle-class taxpayers and small businesses would have faced higher tax payments, particularly in high-tax states, without this permanent fix to the AMT.
Consulting with your accountant is particularly valuable in 2013 to best understand and plan for the new tax laws. The recent tax bill is 157 pages long, including numerous targeted provisions that may affect your business only if you are in a particular industry.
John Spry, associate professor of Business Economics, Finance Department, University of St. Thomas, Opus College of Business