As in every presidential election, taxes were a huge issue for voters this year. With the election over, Congress is facing some serious questions about how they will handle the pending “fiscal cliff” at the end of this year, when planned spending cuts kick in and Bush-era tax cuts expire. What does it all mean to small-business owners?
The latest Hartford 2012 Small Business Success Study offers some insights into what small-business owners might do if their taxes rise. Many of the steps they plan to take are more of the same things they’ve been doing to deal with economic uncertainty.
Expecting Higher TaxesAlthough the poll was conducted before the presidential election, some 77 percent of small-business owners who were polled thought their taxes were likely to increase. If taxes rise further, the majority (66 percent) of small-business owners plan to deal with it by passing the added costs on to their customers. More than half (58 percent) will postpone plans to expand their businesses, 55 percent will cut back on personal investments in their companies and 54 percent will institute a hiring freeze. Just 28 percent plan to cut back on existing staff.
Already, small-business owners report they’ve been taking similar steps to survive in an unsteady economy and to prepare for the unknown ahead. Some 80 percent are cutting business costs. Of those, 68 percent report taking less money out of their companies, 57 percent say they’re cutting back on expansion investments, 52 percent are cutting back on their own salaries or other compensation and 50 percent are hiring less.
On the UpsideWhile small-business owners in the Hartford study cited “slow economic growth” as their biggest concern, you could actually argue that the uncertain economy has benefited small businesses in some ways. Some 76 percent say the economy is prompting them to build stronger relationships with clients; 69 percent are hunting for new business; and 65 percent are fine-tuning their business strategy. These are all positive actions and sometimes it takes tough times to inspire us to do things that we don’t do when times are good.
Taxes were entrepreneurs’ second-biggest concern, but ironically, the Hartford study reports that one-third of small-business owners fail to take advantage of all the tax deductions or incentives they could be claiming. Primarily, that’s because 37 percent don’t know what the deductions or incentives are or whether their businesses are eligible for them.
They say nothing is certain but death and taxes, so make the best of the breaks you can get by:
- Making sure your business’ financial record-keeping is accurate and up-to-date. It’s surprising how many otherwise sophisticated small-business owners still dump a shoebox of receipts on their accountant’s desk at tax time. Invest in accounting software—it not only simplifies record-keeping and reporting, but also lets you share data with your accountant quickly and easily so you can file your returns faster and more accurately.
- Getting professional help. Again, I’m always surprised at how many small-business owners prepare their own tax returns. Using an accountant familiar with your industry can quickly pay for itself if the person is able to spot just one or two tax breaks you didn’t know about or correct mistakes you might have made on your own.
- Don’t delegate it all. Yes, your accountant should be keeping up with the details of tax law, but make sure you, too, stay current with industry news. Your industry’s publications, associations and blogs can alert you to major tax issues that you need to know about; then you can ask your accountant to work out the details of what they might mean to you.
Staying on top of changes in tax laws can be a headache, for sure, but if you don’t do so, you could be missing out on savings that could enable you to invest in your business, hire new employees and otherwise achieve your expansion plans. Isn’t that worth a little effort?
Read more posts about taxes.