The fiscal cliff and your employees
The fiscal cliff is not just a term used in Washington, D.C., but impacts small business owners and their employees right now.
If employees complained about a lower paycheck, a business owner can blame it on the government.
John Caldwell, CPA, MST, CGMA, and a managing partner with Malvin, Riggins & Co., shared his expertise on the subject last month at "The Fiscal Cliff (Or Not): Business Tax Planning in 2013," part of the Hampton Roads Business OutReach Business Builder Series.
Reduced: take-home pay, contributions to FSAs
Social Security taxes increased for employees by 2 percent. That 2 percent tax has been coming out of paychecks since the start of the year.
"If employees are wondering why their checks are a bit smaller, it is because they are paying more for Social Security," Caldwell said.
"Lawmakers did not renew the 2 percent cut in employees' share of Social Security tax," he added.
Overall, Caldwell said, "Pocketbooks are thinner because there is a lot taking place with sudden changes in taxes."
Also in effect was the Flexible Spending Account deferral for medical expenses. It was reduced to $2,500 annually as of Jan. 1.
Increased: business mileage rate, tax on high earners
However, business owners and employees did see an increase in the business mileage rate: They can now charge 0.565 cents per mile.
High-wage earners should plan on paying more. For those earning more than $200,000 a year, there is a 0.9 percent surtax on earned income, Caldwell said.
"Tax rates on high-income individuals increased for the first time since 1993," Caldwell said.
Business taxes and assets show that, in Section 179, up to $500,000 of business assets can be expensed.
New laws surprised business owners and employees
Caldwell said many people were unaware that these tax changes took place.
He does not blame the average taxpayer for their lack of knowledge because there have been so many changes.
Tax laws became more complicated recently.
"Over the past six years, more than 10,000 new tax laws have been implemented - more than four new laws per day," he said.
These changes may not only confuse business owners and employees, but will delay refunds and filing availability, Caldwell said.
Lawmakers took until the very last minute to approve the laws, he said. As a result, computer programmers at the IRS are still working on changes so tax returns can be processed correctly.
"Waiting to see what was going to happen [with lawmakers] caused a delay in the IRS making the needed changes," he said.
IRS gets time to catch up; employers don't
Business owners should not procrastinate getting their end of the tax process started. The tax filing deadline remains the same, Caldwell said.
"You still do not want to wait until the last minute," he said. "You still want to file as soon as possible."
He recommended that employers take these steps now to avoid delays:
* Set up an appointment with their accountants now "to get the ball rolling."
* Collect and organize all tax documents.
* Gather receipts and reconcile books.
"And be prepared to pay taxes if you have had a good year. Set aside some cash to pay taxes," Caldwell said.
"That way when the IRS is ready for you to file, you can just hit the button and it will go a lot faster. You don't want to delay."