Some experts say sit tight while others say get ready to go over. Some say there will be an agreement before it comes to that, others say no way, we are headed straight for the fiscal cliff and there is no stopping us now. One thing all agree on it that if we tumble, the impact could be tragic. This is truer for small business than virtually any other.
So what are small business owners to do?
Due to uncertainty, sitting tight and waiting to see what happens is not an unreasonable option. However, for those who wish to take action and do some preparation, these five tips should help.
Hold Off On Most Business Spending
Since we don’t really know if we are only going to the edge of the cliff or actually going to plummet into the depths below, it may be best to curb spending where possible. If the tax rates do increase, any extra funds will be needed to cover the extra expense. Additionally, budget cuts are likely going to cause many government contracts to be cancelled, but no one knows where or how deeply those cuts are going to hit. Businesses that rely heavily on government contracts, as many women owned small businesses and minority-owned firms do, will need to save for the possibility of a reduction in income.
Consider a Change in Filing Status
Most small businesses file as sole proprietors, S Corps, or Partnerships. Income under these statuses is taxed at an individual rate, which is set to increase substantially. Though changing your filing status costs money as well, it is well worth it to crunchthe numbers and determine if filing as a corporation would be a good move. The change may be worth making, but do it now.
Buy Equipment and Machinery Now
This is the exception to withholding spending in anticipation of the cliff. If you are considering these types of purchases, do it now before the changes go into effect. Currently half of machinery and equipment purchases can be written off up to $139,000. If we go over the cliff, this amount is set to drop to $25,000 per year. Buy them now and write off as much as you can. Biz2Credit.com has helped arrange equipment loans, cash advances, lines of credit, and other types of equipment financing for such purchases.
Maximize Current Year Income
Those who do file as an S Corp, Partnership, or Sole Proprietor can accelerate income in the current year to maximize income under the current, lower tax rates. This is done my sending invoices early when possible, allowing the income can be included in this year.
Map a Plan to Transition from Government Contracts to Commercial
Small businesses that rely heavily on government contracts need to make a new plan. Work on getting more non-government contracts to fill the gaps government contracts leave behind if they are cut.
It may not happen, but it is looking more and more everyday like it will. Do what you can now to cushion the impact when we all land at the bottom.
This article was submitted by Faith Stewart. Faith Stewart has a BBA with a major in accounting and spent 10 years working in the various aspects of accounting and finance before pursuing her passion for writing.