Small business owners have much to ponder this week as tax cut discussions and a potential repeal of an onerous accounting change passed under the Health Care Reform Act hit the spotlight.
Much dialogue in the media this week has centered on how the Obama administration will address the extension of Bush-era tax cuts to top-tax-bracket taxpayers. Underscored as part of that conversation is the impact the withdrawal of those tax breaks will have on small business.
The administration is proposing to reinstate tax rates of 39.6 percent for the top tax bracket and 36 percent for the next bracket down.
Given that 23 percent of individual filers report business income on their personal tax return, according to data from the Tax Policy Center, that means that a significant chunk of the small business market within the US could potentially be affected by the outcome of imminent tax cut negotiations between the administration and the Republican congress.
However, a closer look at tax bracket breakdowns show that the real impact on small businesses will actually be minimal—as Jonathan Starkey in his blog pointed out here.
The Tax Policy Center data shows that of those individual filers reporting business income, only 1.7 percent are in the highest tax bracket. Plus, if you add in the next bracket down—so the two tax brackets potentially affected by the administrations tax proposals—it still only accounts for 2.5 percent of total business income filers.
Contrary to some market pundit commentary citing the enormous impact these changes could have on small business, only a small percentage would be affected.
Nonetheless, for those that could be affected, they will be watching closely as these discussions unfold over the coming weeks.
In addition, small business owners got potential good news this week in the form of a bill introduced by Senate Finance Committee Chairman Max Baucus, from Montana, which proposes repealing the form 1099 filing requirement changes set out under the Health Care Reform Act.
The reporting changes under the Act would have made it necessary for businesses to issue form 1099s to any supplier that provided $600 or more in goods or services over the course of a year.
In addition, it required companies to issue 1099s to corporations as well as individual contractors. So, for example, a company that spent $600 or more over a year at, say, a business supply store, would have to send the store a form 1099.
The repeal, should it go forward, will be a big relief to businesses that were bracing for the much-increased reporting burden that the accounting change would have required.
All in all, legislators will be closely watched by small business owners over the next few weeks as these developments play out.