Many small-business owners were wary about the fiscal cliff negotiations as Congress lumbered through its last session. As the dust settles on the specifics of the actual deal, it seems that some entrepreneurs were right to be concerned: under one proposed agreement, small businesses with revenues between $60,000 and $88,000 would have seen tax hikes from $2,700 to $3,700 per year.
For most small businesses, that’s a pretty big bite of earnings.
The good news about, though, is that if tax hikes of this order take affect in future fiscal cliff negotiations (which could resurface in just a few months), they might not actually impact that many small businesses. That’s because the definition of “small business” depends on who’s talking – and how that person wants you to vote. During most of the fiscal cliff debates, politicians assumed the government’s standard definition of “small business:” any company that has 500 or fewer employees.
In some industries, the employee total is even higher, making it difficult for the average business owner to determine what exactly politicians mean when they assert that their policies will help owners of small businesses.
The term “microbusiness” is a little more helpful, and is generally used to refer to firms with 10 or fewer employees. If your tech firm includes only a handful of employees, you could certainly see a higher tax bill thanks to the new fiscal cliff agreement – but there’s even more to the story.
Average Microbusiness Revenue below $43,000
The majority of microbusinesses in the U.S. are one-person operations, and most of them bring in $43,000 or less in annual revenue. Translation: if your technology firm is by definition a microbusiness, there’s a good chance you won’t be hurt too badly by the new fiscal cliff agreement.
Still not sure how to prepare for your financial obligations to Uncle Sam this year? Take these steps:
- Sit down with your accountant and get clear about your taxes for 2012.
- Establish revenue projections for 2013 and determine whether new tax rates will affect your IRS bill.
- Make sure you’re taking advantage of the various tax incentives that the government has added for small businesses in recent years. Providing health insurance for your employees, for example, could reduce your tax burden and qualify you for special savings.
Writtten by Brenna Lemieux - check her out at Google+ or Twitter