Small business owners who want to give their companies a midyear checkup may find it hard to forecast what the rest of the year will bring. Both tax laws and the economy are in fluc and unpredictable right now.
Many business owners findIt's really hard to plan right now, because nobody knows what's going to happen down in Washington and in Salem.
How will lawmakers change capital gains taxes, both on the federal and stat level? What about changes to the federal alternative minimum tax, whoch could effect businesses that anticiapte, or are planning large write offs.
It's widely expected that federal tax rates will go up next year. So business owners who are expecting to have a better 2011 need to factor that into their 2010 planning.
Here are some issues that small business owners should contemplate before the end of 2010.
TO BUY OR NOT
The Hiring Incentives to Restore Employment Act passed earlier this year included a provision that extended into 2010 the $250,000 Section 179 deduction, which allows small businesses to deduct up-front rather than depreciate the cost of certain kinds of equipment. The deduction, which had been $128,000 in 2008, was nearly doubled last year as part of the government's economic stimulus programs.
But owners need to ask themselves some questions before they buy a new car, office furniture or computer equipment:
-How badly do you need the equipment? If your PC is on its last legs, you probably need to buy a replacement soon.
-Are you more likely to need big deductions this year, or next? If your company is likely to have stronger business in 2011, when taxes are expected to be higher, then maybe you should put off the purchase and take the deduction later.
-Would you get a better deal now? If your supplier is hungry for business and willing to give you a lower
HIRING INCENTIVES - IF YOU HIRE FULL-TIME WORKERS
Most owners are pretty sure about whether business is good enough for them to start hiring. For those who are leaning toward taking on a new staffer, the HIRE act contains a couple of incentives.
One is a tax break for employers who hire full-time workers who were previously unemployed or working part-time. This break exempts employers from paying the 6.2 percent Social Security tax on workers hired after Feb. 3 and by the end of the year.
Moreover, for each worker who is hired and retained for a year, the government will give a business a $1,000 credit on their 2011 taxes.
PERSONAL VERSUS COMPANY FINANCES
At this point in the year, some business owners might want to be considering whether they should put money into their personal investments. If business has picked up, and they feel they can spare the cash, retirement plans or even rainy day funds may be the place for it.
With taxes expected to go up in 2011, a Roth IRA can make sense because withdrawals aren't taxed.
If you're planning on transitioning out of your business, particular if you're considering passing it along or selling to the next generation, then this may be a good time to start. A lower valuation in a down economy may make it easier to gift and plan on succession planning.
ESTATE PLANNING FOR SMALL BUSINESS OWNERS
Although the estate tax is also up in the air, a slow economy may make it less costly to move the business into a family LLC or trust. The lower the valuation, the more quickly the transfer of ownership can be made, at least in some cases.
The take away here is this. Even though the economy may only be in the beginnings of recovery, its a very good time to start planning for the eventual recovery, taking into account potential advantages in current tax law, and the liklihood of increases in tax rates and business values.
If you'd like a business check up, please contact us for a consultation.
Attorney at law
Harris Law Firm, PC