NEW YORK - Small businesses trying to plan their finances for 2009 are finding the process complicated not only by the recession, but by the uncertainty about what governments at all levels will be doing to either stimulate the economy or make up for lost tax revenue.
Business owners are waiting to see how they might benefit under the stimulus plan that the Obama administration is expected to present soon after it takes office. Small businesses also face unknowns from their state and local governments — in some areas, for example, property taxes will be going up, which will affect companies whether they own or rent their premises.
Governments are likely to act quickly in the new year, and small-business advocates say company owners need to follow the news closely to see how they might be affected.
“There is a possibility of some changes being made that could be beneficial, but they could be short-term,” said Bill Rys, tax counsel for Washington, D.C.-based National Federation of Independent Business. “There could be an opportunity for a lot of savings, and you don’t want to miss that savings.”
Rys added, “we could see a lot of changes in a short amount of time.”
Among the questions to be answered under the Obama administration and the new Congress that convenes in January is whether two business features of the 2008 economic stimulus plan will be extended or modified for 2009.
One is the near doubling of what’s known as the Section 179 deduction, which allows small businesses to deduct up-front the cost of equipment such as computers, cars, office furniture and manufacturing machinery.
The deduction for 2008 was $250,000, up from an originally planned $128,000.
Also uncertain is the future of the 50 percent bonus depreciation, which gave business owners a more generous than usual first-year deduction for capital equipment bought during 2008.
One federal tax change that is certain is a drop in the mileage deduction for vehicles used for business purposes; the IRS has announced the deduction is being lowered to 55 cents from 58.5 cents in the second half of 2008. The government had sharply increased the deduction due to the spike in gas prices from 50.5 cents.
It’s likely that a variety of tax proposals will be floated by lawmakers and by business advocates.
The National Federation of Independent Business is campaigning for the government to suspend payroll taxes — employees’ and employers’ contributions to the Social Security system — for six months.
Rys said such a step would “get this money back into the hands of small businesses and their employees.”
The tax amounts to 6.2 percent of a worker’s salary. “We think this provides a really substantial stimulus effect,” Rys said.
But, while there will be much talk of tax cuts, small businesses in cash-strapped states may see taxes going up. “They’re trying to make up for lost revenue,” Rys said.
California, for example, is trying to close what’s expected to be a $42 billion shortfall over the next 18 months, and several tax increases have been proposed but not yet approved. In New York City, property taxes are going up.
Still, tax breaks are expected in some form next year. And small business owners will be looking beyond taxes to see how they might benefit from federal, state and local economic stimulus plans.
Owners whose companies are in construction-related industries are likely wondering if they’ll be able to get some work from President-elect Barack Obama’s plan to stimulate the economy through a massive public works program.
For example, asphalt and cement producers located near a road improvement project are probably hoping to pick up some of that business.