How does Obama's tax plan effect small business?

Recently, the Tax Policy Group of Deloitte Tax LLP, in Washington, D.C., issued "Tax policy decisions ahead - President-elect Obama's call for change", which focuses on the President-elect's likely tax agenda for 2009 and 2010.  According to the Deloitte study, the likely agenda for 2009 and 2010, "may unfold in two distinct pieces.  The first could be tax cuts focused on economic recovery and other stimulus actions meant to address the current economic downturn.  The second could be a package of tax proposals to address the longer-term issues that were raised in the campaign."  Now that we know the broad nature of the agenda, how does this effect small business, referred by many as the "backbone" of the economy?  Let's take a look.

The Deloitte study categorizes Obama's business tax strategy into four broad themes.  They are the following:

• Protecting and growing U.S. jobs;
• Changing how we produce and use energy;
• Restoring "fairness" to the tax code; and
• Providing quality health care.

Let's take a further look into the categories that will have the largest impact on small businesses, "Protecting and growing U.S. jobs" and "Providing quality health care".

-Protecting and growing U.S. jobs

As was heard throughout the campaign, Obama's focus is on creating incentives to companies for maintaining jobs in the U.S. and limiting benefits of companies that ship jobs overseas.  As a result, the key incentives of the President-elect's tax plan relating to small business according to the Deloitte study will include proposals to:

• Reduce the corporate tax rate for companies that start or expand operations domestically;
• Eliminate all capital gains taxes on small business investments and for startups;
• New American Jobs Tax Credit during 2009 and 2010 that would provide existing businesses that make net additions to their U.S. workforce a $3,000 refundable tax credit for each additional full-time employee hired. The President-elect would extend the temporary increase in the small business expensing allowance to $250,000 through 2009.

-Providing quality health care

Although Obama has called for far reaching health care reform, these changes appear to impact larger employers more so than small business.  According to the Deloitte study, Obama's changes would create a potential mandatory contribution to the National Health Insurance Exchange for those large employers that do not offer or make a meaningful contribution to the cost of health care to their employees.  Obama's plan, however, would exempt small businesses from this requirement and they would receive a new Small Business Health Tax Credit intended to reduce their health care costs.

Now that we have an idea as to the basics surrounding Obama's tax plan as it relates to small business, we should also quickly consider its impact on the small business owner.  The good news is that if you are a single small business owner that makes less than $200,000 or married making less than $250,000, your benefits are preserved and most likely, your taxes will not increase.  Once you move above those thresholds though, chances are that your tax will increase from years past.  And they could increase substantially.  As a San Diego accounting firm, we can recommend that it is always best to consult with your tax advisor over any questions that you may have.  In San Diego alone, there are plenty of San Diego accountants, CPAs, and accounting firms of which to choose from.

The common perception among small business owners is that the tax environment proves more challenging with a Democratic President in office.  However, with the current state of the economy, the President and Congress will be hesitant to raise taxes on the economy's "backbone".  As a result, small businesses may catch a break... in the short term.