Preparing for new payroll, social security & deductions
By Doug Walsh
Just days after 2013 began Congress passed a bittersweet compromise that avoided significant tax increases for most everyone but left small-business owners uncertain about the future of the economy.
Key elements in the deal were a permanent fix for the estate tax and the decision not to extend the two-percent reduction in the Social Security payroll tax.
In 2011 and 2012, workers' Social Security payroll taxes were reduced to 4.2 percent, down from 6.2 percent. Meanwhile, employers continued to pay 6.2 percent of an individual's total wages.
According to a report from the National Small Business Association, business owners remain concerned about tax increases on higher-income earners and the delay on deciding on spending cuts to address the debt ceiling.
Advocates for small businesses say that so long as the federal government does not have a plan to reduce spending and address the deficit, there is doubt about whether future plans could include tax increases that could have a chilling effect on the business climate.
On the plus side, some parts of the compromise will make accountants for small businesses happier. The deal allows some owners to make retroactive expense deductions, encourages the purchase of new equipment and extends some small-business tax credits.
The legislation also includes a change for the estate tax exemption, which was scheduled to drop to $1 million, but will remain at $5.12 million. The maximum tax rate will rise 5 percent to 40 percent after reaching that $5.12 million threshold.
Increased allowable expensing under Section 179 of the tax code and the extension of the bonus depreciation could be a big benefit for small businesses as well.
Limits for Section 179 — which allows small businesses to deduct qualified equipment purchases — dipped from $500,000 in 2011 to $125,000 in 2012. The threshold was scheduled to drop to $25,000 in 2013. The new tax package bumped allowable expensing back to $500,000 in 2013 and 2012, retroactively.
The bonus depreciation, which allows businesses to recover up to 50 percent of the cost of qualified purchases, was also extended through 2014.
Highlights of the deal, according to the NSBA, include:
• Bush tax cuts: Permanently extends the 2001 and 2003 income tax cuts for individuals and families earning less than $400,000 and $450,000 respectively. Taxable income above those levels faces a 4.6 percent increase to a maximum rate of 39.6 percent.
• Estate tax: Extends the current $5.12 million exemption level, but the maximum rate will jump from 35 percent to 40 percent.
• Section 179 expensing: Increased allowable expensing of $500,000 is extended for 2012 and 2013.
• Bonus depreciation: The increased 50 percent bonus depreciation rules for investment in new property and equipment remain in place for possessions placed in service before the end of 2013.
• Payroll tax reduction: Didn't extend the 2 percentage point reduction in workers' Social Security payroll tax that was enacted two years ago on employees' portion of the payroll tax.
• Capital gains and dividend taxes: Capital gains and dividends for individuals and families earning below $400,000 and $450,000, respectively, will remain at 15 percent. For those above those thresholds, the dividend tax rate will increase to 20 percent.
• Alternative minimum tax: Includes a fix for the alternative minimum tax, which will increase the exemption amounts to $50,600 for individuals and $78,450 for couples.
As far the service segment of the pool and spa industry is concerned, government-mandated and consumer sought-after safety and environmental measures continue to drive business in the wake of the recent years’ recession and subsequent slow recovery of the economy.
And as we head into the 2013 swim season, firms that stay on top of as new regulations and consumer trends figure to not only endure but — indeed — prosper.
Several challenges have been presented in recent years, not the least of which is added competition from builder segment, which has attempted to make up for lost construction revenues by expanding service functions.
In addition, Internet marketing has also put pressure on revenues from equipment sales that once could be counted on to boost the bottom line through tradition pricing markups. Now, it is not unusual to find products online being offered for sale to your customer at prices that are lower than your wholesale cost at the distributor.
And, obviously, most service firms have experienced some type of loss of customer base because so many homeowners have lost their house to foreclosure.
Companies small and large across the country have complained about economic uncertainty because of federal government policies that are often eyed as anti-business. Most businesses can deal with policy: it’s often the mere fact that we have uncertainty that creates problems for business planning.
But even in the face of continued political divisiveness in Washington, many economists are optimistic about the prospects for business in 2013.
According to Money magazine, three areas or the economy are reason for this optimism: employment, debt and housing.
• Money says that jobs are on the rebound. While hiring is hardly robust, the unemployment rate is well off its recession-era peak of around 10 percent. Money predicts that the economy will be adding nearly 175,000 jobs a month this year, an increase of about 16,000 jobs a month from 2012 figures.
• As consumer debt has shrunk, the balance sheet of American families is looking up. Consumers have been working down their levels of installment debt, and that, combined with low borrowing rates for houses and cars, has eased their monthly payment burden significantly.
• Housing is finally making a come back. For five years the real estate market has been dismal but the winds are changing. Money says that in many areas of the country, the inventory of homes on the market is down 20 percent from just a year ago and sales of existing single-family homes has jumped 11 percent. Meanwhile, demand should remain elevated as mortgage rates stay at historically low levels.
And these three areas could be good news for the service trades as we begin the new year. Here’s hoping it’s a good one.