Small business owners may be wondering how that statement can be true.
The administration says the new revenue will come mainly from big businesses and wealthy Americans; conversely, small businesses will benefit from tax cuts that "spur investments in job growth and innovation here at home."
In truth, the proposed plan is a complex system of cuts, increases, and expirations that won't reveal its exact effect on your business until March 2011 (or after a thorough meeting with your accountant). However, on first glance, we can see at least four changes that will help small businesses, and four that could hurt them.
Good for small businesses
1. Eliminating capital gains tax for investments in small businesses. Effect: Small businesses would attract more investment.
2. Making permanent the research and experimentation credit. Effect: Although the credit exists already on a temporary basis, making it permanent would boost confidence for innovative start-ups and their investors.
3. An immediate small business jobs and wages tax cut (for 2010). Effect: Small businesses would be able to hire in 2010, thanks to a $5,000 tax credit for each new employee.
4. Tax incentives for small businesses to make immediate investments (for 2010). Effect: Small businesses could immediately write off up to $250,000 in qualified investments.
Bad for small businesses
1. Re-establishing reporting rules on deals over $600. Effect: Small businesses will be taxed on a greater number of transactions.
2. Repealing LIFO accounting method for inventories. Effect: American businesses used to save taxes by assuming that assets acquired last are the ones that are sold first. They will lose money by conforming to the international standard of FIFO accounting.
3. Increasing certainty with regard to worker classification. Effect: The IRS would have increased ability to change the status of a worker from independent contractor to employee. Some small businesses would be forced to give full benefits to a larger pool.
4. Reinstate the 36% tax rate for individuals making over $200,000, families over $250,000. Effect: Small business owners who strike it rich will hit a big roadblock.
In conclusion, the tax plan contains many breaks for small businesses. By letting Bush's tax cuts expire and increasing regulation of current taxes, however, the plan will also increase taxes on certain businesses and individuals.
Either way, it's a whole new game, and smart businesses will be quick to learn the perks and pitfalls.