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sheltering from taxes

It’s a known fact that small businesses out there in our economy really do stand for the backbone of our corporate health. The large mega-corporations, obviously, can act as the head and heart of the entire nation, but without that backbone, there’s no walking around, or even functioning. We thrive on small business.

It’s no surprise that there are new tax laws designed to affect small businesses — everything from the startups to sole proprietary entrepreneurs. It’s important to really get the skinny on what these laws are, though, and what they provide. The good news is this: these laws are designed to help small businesses!

Ways and Means Find “Ways” to Really Help Businesses Meet Their “Means”

There are constant revisions, drafts and amendments to certain tax laws, detailing effective changes to help bolster small businesses. I think that’s honestly the greatest advantage our government is trying to handle: constant review of the laws to better the corporate landscape.

In particular, the House Ways and Means Committee actually did draft a revision of certain tax laws, such as the Section 179 deduction, allowing smaller companies to deduct equipment expenses, plus an added bonus for more purchased or upgraded equipment, stretching the tax credit indefinitely to the tune of up to $250K annually.

Additionally, startup cost deductions saw an increase from $5K to $10K. Furthermore, the committee made other changes regarding tax deadlines, pushing the timing back for all businesses. This gives a little breathing room. The committee also chanced eliminating any tax differences between similar company types, such as partnerships and S corporations.

What does that mean? Your business, no matter what size, type or industry, can claim a lot more in deductions. That means more money in your pocket.

Information Is Power

With regard to tax law, and it would benefit you to hire a good business lawyer to plan for this, we’re already seeing something called an “internet sales tax” showing up in several states. Believe it or not, but depending on where you live, you may not be paying taxes for purchases you make online.

That may change soon, though. There’s talk about a nationwide internet sales tax going on, but so far nothing has been officially made law.

Because of this mantra — the power of information — small businesses then can plan for those taxes immediately, even before any law is enacted.

There is a proposed legislation, though, in regards to this: it’s called the Marketplace Fairness Act, requiring any company to collect taxes on all purchases beyond revenue of $1MM or more in a year. That collection of taxes, of course, would go into the internet sales tax required for all businesses to pay.

Nothing Says Lovin’ Like a Good ol’ Tax Cut

Since 2009 when President Obama took office, we’ve actually seen quite a few of those tax cuts. There 18, to be exact. Some of the most notable include:

  • The Small Business Jobs Act — This allows self-employed Americans the ability to deduct their own health insurance costs for tax purposes, plus accelerated bonus depreciation of claiming 50% of costs, which reduces expenses of investments and expansion.

  • The Affordable Care Act — It’s important for employees to have their health insurance, which is why even the smallest businesses will benefit from providing that given this act will credit those businesses by up to 35% in their taxes to offset the costs. To make it even better, the next year will see a 15% increase of the credit.

  • The HIRE Act — It’s called the “Hiring Incentives to Restore Employment” Initiative. When you think about it, it’s a pretty nifty idea, allowing companies to hire previously unemployed individuals, taking a nice payroll tax exemption and general business tax credit as a result. The key, obviously, is to basically get people back to work.

  • The R&D Tax Credit — Because research and study is so vital to the wellbeing of our nation, it’s no surprise that there was already a credit like this in place for awhile now. It unfortunately did expire at the end of 2011, but thanks to the changes made already, this credit has been extended to allow businesses the opportunity retroactively apply that credit to investments made in 2012.

  • The Work Opportunity Tax Credit — We love our military. To show that, the government has made it easy for employers to hire veterans or even other candidates from underserved communities facing major job-hunting barriers. How? Businesses basically get a tax credit for hiring those employees. It’s a complete win-win, too, in that more people get better chances of obtaining a job.

The challenge, obviously, is knowing what to claim. Yes, the tax credits are great, and we probably should celebrate. More importantly, I’d say we need to be educated. We need to know what might apply to us. Why? Because no one wants to miss out on tax credits or try to claim tax credits that don’t fit our specific situations. There could be penalties later for doing the latter.

Whatever the Case May Be….

It’s always going to be good advice to do a check on what’s new in tax law. The niche is quite complex, and you really can never be sure of what you’re entitled to unless you consult with an accountant or good tax attorney.

Do the homework and research and start getting the help you need to fund and kickstart your business.

About Matthew Faustman

Matt Faustman is the co-founder of UpCounsel, the fastest growing online workplace for businesses to easily hire and manage trusted attorneys. Matt writes more posts on business legal issues, efficiency, and the future of labor over on the UpCounsel blog. Hit him up on Twitter @UpCounsel anytime.