FINANCE: Kicking the Fiscal Can Down the Road
If small business owners behaved the way politicians do, the economy would be in a lot worse shape than it is. Waiting since last July for the Washington pundits to decide when and what strings to pull is not okay with this small business owner. We know things will always be changing and at this point most people can take a look at the economies around the world and plan their business accordingly.
It is obvious there is not enough money in the federal coffers to pay for all of the programs Americans are currently used to receiving. Now that we have a partial answer to the fiscal cliff regarding income tax rates, we still need to deal with the federal deficit. The fact of the matter is that both income and expenses have to eventually change. Therefore, the sooner we plan for the worst case scenario, the more prepared we will be.
At a business level let your employees know that the reduction in their paycheck starting this month is not because of you, but it was a benefit that has expired. They have been enjoying an extra 2% in their paycheck that will revert back to the original 6.2% Social Security withholding on the first $113,700. Instead of viewing this as something that is being taken away, encourage employees to view this as a gift they received in the past.
The same could be said for almost any of the tax and spending expirations. While it is not right that our government does not feel the need to be fiscally responsible, we should be in our households and businesses anyway. In the past it is the businesses that grow the economy, not the government.
The tax rates from 2012 will remain the same for 2013 for singles earning up to $400,000 and couples earning up to $450,000. Above this level, the marginal tax rate increases to 39.6%. Certain personal exemptions are phased out for individuals over $250,000 and couples over $300,000 of taxable income. Capital gains and dividend income rates will now be capped at 20% for joint filers over $450,000 and individuals over $400,000. The new 3.8% healthcare surcharge on investment income will be applied for couples over $250,000 and individuals over $200,000 of income.
The Estate Tax exemption has been set at $5 million and the federal tax rate on estates over that amount will be 40%.
With all of these changes, it is imperative that business owners and investors meet with their advisors to plan accordingly. Expect more changes to come in a few months when the debt ceiling is addressed.
Patricia Kummer has been an independent Certified Financial Planner for 26 years and is President of Kummer Financial Strategies, Inc., a Registered Investment Advisor in Highlands Ranch. She welcomes your questions at www.kummerfinancial.com or call the economic hotline at 303-683-5800.Any material discussed is meant for informational purposes only and not a substitute for individual advice.