January 15, 2013
Silver linings for small business owners
While the last-minute fiscal cliff deal isn’t exactly cause for celebration amongst small business owners, there may be a little-known silver lining: part of the deal includes the extension of a R&D tax credit available to small businesses through 2013.
The R&D tax credit covers a wide range of activities, including improving an existing product, making a building greener, and reducing costs to make a product. It also covers a broad scope of industries – manufacturing, computer software, architects, engineers and food processing firms, to name a few.
The credits can be transferred in an acquisition and can be taken retroactively. They are considered particularly beneficial to start-ups, because R&D costs incurred in years when a company has no income can be carried forward to offset taxes on future profits.
While taking advantage of a tax credit may lead to a more meetings with your accountant, it could make the fall-out from the fiscal cliff deal less painful. Consider this small business owner’s situation recently reported in the Wall Street Journal and the Cincinnati Business Courier:
“One [small business owner] is Tom Secor, who co-owns Durable Corp. in Norwalk, Ohio. Because his company is structured as an S-Corp, or partnership, Secor and his partners each pay taxes on their share of the profits at their personal income-tax rate. Secor’s rate was 35 percent last year.”
“But because the company’s profits are likely to boost Secor’s personal income above $400,000 and the fiscal cliff deal reached Tuesday, his tax rate on the income over that amount would jump to 39.6 percent.”
In a new year that might not be so happy for small business owners, the R&D tax credit could help make up lost dollars. Ideally, says Matt Davis, Cincinnati USA Regional Chamber VP of Government Affairs, “this R&D extension would become permanent to bring certainty to U.S. tax law, foster more effective business decisions and encourage investment.”
And, keep in mind that the Chamber’s numerous Bottom Line Benefits programs can help you lower costs, on everything from air travel to healthcare. Do the math at our ROI Calculator to learn more about how the Chamber can help you save money in 2013.