Small Businesses Net Key Tax Breaks, But Will Consumers Spend?

Small Businesses Net Key Tax Breaks, But Will Consumers Spend?Small businesses got some relief in the fiscal-cliff deal of tax-break extensions, but those benefits may be offset by a slowdown in consumer spending driven by smaller paychecks.
Most working Americans will see leaner paychecks thanks to the expiring “payroll tax holiday,” which was not renewed by lawmakers after a two-year run. The amount workers pay to fund Social Security had dropped from 6.2 percent to 4.2 percent to help fuel the economic recovery.
Now, the payroll tax is back up to 6.2 percent. For a typical worker making $50,000, that’s about $40 less on a bi-weekly paycheck.
The biggest uncertainty among small business owners going into the new year is how tax burdens on potential customers will affect sales. The fiscal-cliff deal hopes to make up for the expiring tax holiday by extending some business tax breaks.
Here’s a rundown of key business-related extensions:
» The Research and Development (R&D) tax credit was extended for another year and reinstated retroactively for 2012. Employers can continue to get tax breaks for between roughly 6 percent and 14 percent of their R&D expenditures.
» Congress renewed for another year the maximum deduction levels for bonus depreciation and so-called Section 179, which provides tax breaks for the purchase or lease of software and equipment. Both of these extensions can significantly bolster small employers planning to re-invest in their businesses.
» Also renewed is the Work Opportunity Tax Credit (WOTC) is a tax credit available to employers for hiring individuals from certain target groups who regularly face major barriers to employment.
» The Production Tax Credit (PTC), an incentive to keep electricity rates low and encourage development of proven renewable energy projects, was also extended for 2013.

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