With the presidential election set for less than a month away, there are still uncertainties surrounding taxes in 2013.
Not only are people concerned from a business basis about the tax changes, but also from an individual level as well. The Bush tax cuts are set to expire at the end of 2012 and revert back to the 2001 levels, increasing the top tax bracket from 35% to 39.6% and the lowest tax bracket from 10% to 15%. Long-term capital gains are scheduled to be taxed at 20% versus the current rate of 15% and qualified dividends will be taxed at ordinary income levels versus 15%.
On a corporate level, the White House and Department of the Treasury are interested in tax reform. Their plan would be to cut the top corporate tax rate from 35% to 28% in exchange for the elimination of popular tax deductions such as accelerated depreciation, interest, and LIFO inventory. Since most contractors are set-up as pass-through entities, now would be a good idea to take another look at their current structure since individual rates could increase as corporate rates decrease.
Under the tax reform, large pass-through entities could be taxed as a C corporation. It was not defined what constitutes a "large non-corporate entity", but in 2011 the Treasury Department proposed taxing any business with more than $50 million in receipts as a corporation. This could provide headaches for large contractors seeking to obtain bonds, which would require booking deferred and current liabilities for taxes and reduce working capital and equity on the balance sheet.
Another concern with the corporate tax reform is the effect it will have on small pass-through businesses. If the corporate rate is lowered and related business tax expenses are reduced or eliminated, will there be any change in the individual tax rates since that individual's effective rate has essentially been raised.
In addition to the items mentioned above, we encourage you to review this summary of potential 2013 tax changes for more tax-related issues that may affect you from a business or personal standpoint.
Overall, it is best to consult a tax professional to ensure that you pay the least amount of taxes personally and for your business, based on proposed or anticipated changes to tax reform.
For more information on our real estate and construction accounting firm, contact Denny Murphy, CPA by leaving a message below or by calling 440-449-6800.