In 2013, small business owners will contend with many of the same issues that made it hard to run their companies during the past 12 months.
They’re also heading into the new year with a lot of uncertainty. It’s unlikely that negotiations in Congress will resolve all of lawmakers’ disagreements over tax and budget issues that affect small businesses. And there are still many questions about the implications of the healthcare law for small companies.
That points to continued caution — and perhaps slow hiring — among the nation’s small companies.
“Uncertainty is the bane of every small business,” says Scott Shane, a professor of entrepreneurship at Case Western Reserve University’s Weatherhead School of Management in Cleveland. “Their only rational response is to pull in their horns and slow down.”
Small businesses aren’t likely to get much encouragement from the economy. It’s expected to grow by no more than 3 percent in 2013, according to the Federal Reserve. That’s a moderate pace, better than the 1.7 percent that the economy grew during the first three quarters of 2012. But it’s also far from robust.
Here’s a look at some of the issues facing small businesses in the coming year:
TAXES
Lawmakers are still haggling over what’s called the fiscal cliff, the combination of billions of dollars in tax increases and budget cuts. Even if Congress reaches an agreement, small business owners won’t have the certainty they need, according to Todd McCracken, president of the National Small Business Association, a group that lobbies on behalf of small companies.
“It almost surely won’t be comprehensive enough that we won’t be revisiting it next year,” McCracken says. He’s concerned that there’ll be another fiscal cliff in six months — which would mean more negotiations and more uncertainty.
Many small business owners are worried about their personal tax rates. Sole proprietors, partners and owners of what are called S corporations, all report the income from their businesses on their individual Form 1040 returns. That means their companies are in effect taxed at personal rates, which can be higher than corporate rates.
One of the most important tax provisions for small businesses, what’s known as the Section 179 deduction, will shrink to $25,000 next year from $125,000 in 2012. The deduction, which applies to equipment purchases, was $500,000 in 2011. Congress can increase the deduction at any time, even after 2013 has begun. But for the time being, business owners can’t count on getting a big break.
“It’s a huge change for companies planning on making investments,” McCracken says.
It’s not known if Congress will extend the 2 percentage point payroll tax cut that workers have had for two years. If it doesn’t, consumers will have less money in their paychecks to spend, and that is likely to affect retailers and any other small businesses that sell directly to the public.
HEALTHCARE
Healthcare has been another source of uncertainty for small business owners. The new year will bring some, but probably not all, of the answers to questions about how the new healthcare law will affect them. Many will have to devote some time to understanding the law — or hire someone to help them do it.
