Taxing Small Business Owners Above $250,000

Taxing Small Business Owners Above $250,000

If Democrats have their way Obama’s small business tax plan will go into effect whether he wins the Presidential nomination or not; what Joe the Plumber has come to know is likely to impact every small to mid-sized company in the nation. If you are a little confused about the exact details then don’t worry – you aren’t alone. The fact is, there is still a lot of work to be done but it works something like this…

1.      If you own a small business that pays you more than $250,000 per year then your personal income would go up in the form of increased FICA and/or Social Security amounts above the current limit. This would not impact your earnings from investments or other sources of profit – only income taxes.

2.      If you own a business that makes a profit of $250,000 or more annually then it will also get taxed at a higher rate than currently; the exact level of tax increases is still open to debate with estimates ranging from 28 percent to 38 percent. Where the actual rate will end up is purely speculation at this point. Keep in mind, the government is anxious to make-up major deficit spending by increasing taxes whatever manner possible.

3.      Taxes on health benefits and other employee provided options is also on the table thanks to McCain’s proposals. Big bail-outs have led to near desperation as the government tries to support a sagging economy without throwing the nation into a recession. Either way, employees will bring home less of their paycheck and expect small business owners to make up the difference.

So, should small business owners prepare for the worst? Yes and no. Chances are changes are coming down the pipeline no matter who makes it into office this week. On the other hand, changes won’t be immediate and there is likely to be a work-around for almost any scenario. One of the main considerations is to remain flexible and keep your options open in order to streamline costs while still growing your business in any situation.  

As the government attempts to make-up for deficit spending and huge bail-out plans don’t be surprised to encounter more taxation rather than less. Reduce your costs now while the option is available; later you might find it more difficult to eliminate excess workers or reduce expenses.