Small business owners “nervous” about looming fiscal cliff

Eric Blinderman, who had to shut down his two upscale New York restaurants for a week in the aftermath of Hurricane Sandy, said the approaching fiscal cliff could mean a “double whammy” for his business heading into the busy holiday season.

With a package of $500 billion in tax increases and spending cuts set to come into effect on January 1 if President Obama and Congress fail to agree on an extension or reach an alternate deal, small business owners like Blinderman will be hit with additional costs that could seriously impact their bottom line and ability to grow.

“That uncertainty is what leaves me so nervous,” said Blinderman, who operates two restaurants, both named Mas, in Manhattan’s affluent West Village that employ about 100 people.

Blinderman relied on a pair of Small Business Administration (SBA) loans to open his restaurants and wants to launch a third location, but said some of the projected cuts to the SBA’s budget may derail that.

“If we don’t sidestep the fiscal cliff then I won’t be able to expand,” he said, referring to the $65 billion in federal spending cuts that will be automatically triggered as a result of the Budget Control Act – a last-minute deficit-reduction deal reached by Obama and the Republican-led Congress in August 2011.

“All of these SBA lending programs and related issues will be impacted negatively,” said Blinderman, adding: “if this had occurred in 2010 or 2004 I wouldn’t be a small business owner and neither of my restaurants would exist.”

Blinderman’s concerns are supported by the findings from a new national poll released this week by the Small Business Majority, a Washington, D.C.-based small business advocacy group. The telephone poll of 500 small business owners, conducted over a two-week period from September 27 to October 12, showed more than 60 percent of respondents are anxious about the potential impact of spending cuts on the SBA, military, infrastructure and government contractors.

“The vast majority of small business owners are familiar with the basic situation,” said SBM founder and CEO John Arrensmeyer. “The concern is how much of this is going to affect small businesses and job creation.”

Small business owners are most worried about the impact of tax increases on their employees and customers. A 2-percent payroll tax cut Obama negotiated with Congress in 2010 when the Bush-era tax cuts were extended is due to expire, ending what amounts to a $1,000 income boost to many middle class taxpayers.

Also beginning in 2013, 28 million Americans could be subjected to the alternative minimum tax (AMT), a levy initially created in 1969 as a “millionaire’s tax” but now would apply to people with incomes as low as $30,000.

The SMB poll showed 80 percent of small business owners are concerned about a potential increase in the number of households facing the AMT, which Arrensmeyer said would entail a loss of as much as $2,800 per household.

The survey also revealed 75 percent of respondents favored the elimination of tax loopholes that favor large corporations and nearly 60 percent supported raising capital gains tax to 20 percent for the wealthiest 2 percent, which includes people earning above $250,000 a year.

Arrensmeyer said that applied to less than 3 percent of the small business owners who participated in the poll, of which 47 percent identified themselves as Republicans, versus 35 percent Democrat, 8 percent independent and 10 percent who chose “other” or didn’t respond.

“My customers are squarely in the middle class,” said Mike Brey, owner of Fairfax, Virginia-based toy store chain Hobby Works. “We got crunched pretty hard during the recession. We don’t want to be looking at another ‘pothole’ here as we recover from what we just went through.”

Brey, who operates five stores in Virginia and Maryland that bring in about $5 million in annual revenues, is in the process of adding two more locations. He said political dithering over the deficit could derail his expansion plans as the amount of tax exemptions he can employ could be significantly reduced come January.

“It’s extraordinarily difficult when a major portion of your tax planning is up in the air,” confessed Brey, who added it impacts his ability to get bank loans. “If you’re expected to lose a significant portion of your ability to capitalize expenses in the first year, that definitely affects your projections and your planning for how you’re going to move forward.”

Most small business owners just want their political leaders to come to some sort of resolution. The SMB poll found 53 percent want Congress and the president to make job growth their top priority, as opposed to 42 percent who want them to focus on a plan to reduce the deficit.

Larry Lang, chief executive for Quorum, a Silicon Valley-based technology company that develops cloud-based software solutions for businesses, doesn’t anticipate there will be a resolution before the end-of-the-year deadline.

“Sadly politicians, like undisciplined school children, tend to leave their homework to the 11th hour,” said Lang, who nevertheless plans to grow Quorum’s 30-person staff by as much as “50 percent” in the next year.

“Sticking to our knitting, life goes on,” he added. “Small and medium-sized businesses need to do what they need to do.”

Article source :http://uk.reuters.com

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us On Facebook

Tax grab will push 400,000 mid-income earners into top band

Cuts in pension relief could hurt teachers and civil servants, while rise in income thresholds will also hit better off

 George Osborne gave with one hand – a surprise £1bn tax giveaway for working people, with an increase in the amount they can earn before paying income tax – but took with the other, as he revealed a £1bn tax grab from middle-earners, which will see 400,000 more people dragged into the 40% tax band.

Widely trailed changes to tax relief on pensions were tougher than expected, with the cap on tax-free contributions falling from £50,000 to £40,000. That reduction, combined with a cut in the "lifetime allowance" for pension savings from £1.5m to £1.25m, will earn the Treasury an extra £1bn.

The chancellor said the measures will affect just one in a hundred savers, but it provoked a furious backlash from the pension industry, which claimed the move would further alienate people from saving for retirement.

The changes to income tax will benefit more than 24 million people, the Treasury said. The personal allowance (that bit of your income on which you pay no tax) was due to rise to £8,105 in the current tax year and to £9,205 in 2013-14, but Osborne said it would now increase by £1,335 in April – £235 more than previously announced. That translates into a £47-a-year tax cut for working people.

Osborne said of the increase: "This is a direct boost to the incomes of people working hard to provide for their families. That's £47 extra in cash next year. We are within touching distance of the £10,000 personal allowance."

But the point at which individuals start paying tax at 40% will fall from £42,475 to £41,451, and then rise by just 1% a year thereafter. As a result, many more people will start paying higher-rate tax, with the government admitting that 400,000 more individuals will be thrown into the higher tax bracket by 2015/16.

The Taxpayers' Alliance, a rightwing lobby group, said: "The chancellor has sent out entirely the wrong message to those earning or hoping to earn the increasingly modest wage where almost half of your income starts to be taken in income tax and national insurance.

"Hundreds of thousands of new people are being ensnared by a punitive rate of tax."

The chancellor also said he is pressing ahead with the cut in the highest rate of tax to 45% from April next year, claiming that the 50% rate, rather than increasing total tax revenue, actually reduced it. "HMRC data reveals that in the first year of the 50% tax rate, tax revenues from the rich fell by £7bn and the number of people declaring incomes over £1m fell by a half. A tax raid on the rich that raises almost no money is a con."

But at the other end of the income scale, millions of working households will be hit by a real-terms cut in tax credits and child benefit. Osborne said most working-age benefit and tax credit increases would be pegged at 1% for the next three years, and previously planned freezes would go ahead.

Child benefit payments will also face further cuts. In a month's time, 1.2 million families with a higher earner will start losing some or all of their child benefit. Osborne had already announced that child benefit rates would be frozen for three years until April 2014, and on Wednesday said that after that, increases will only be 1% a year for the following two years, saving the public finances £175m, rising to £330m by 2017/18.

The government billed the changes to pension taxation as a measure that will only affect a tiny number of wealthy savers. Under the new rules, any payments into a pension scheme above £40,000 will in effect be hit with a charge set at the individual's marginal tax rate.

For someone earning more than £150,000 in the 2013/14 tax year, when the top rate of tax will be 45%, the cost of contributing £50,000 into a pension scheme will rise by £4,500.

But pension experts warn that the changes could also hit teachers, doctors and civil servants, who have a good final salary-based pension scheme.

According to figures prepared by Hargreaves Lansdown, someone earning £55,000 a year could face a tax charge of as much as £13,000 in 2013-14 as a result of the pension cap, although they can take advantage of unused pension allowances to minimise the charge.

The impact will be felt most by someone with a long service record who receives a pay rise towards the end of their career, which can have a significant impact on the final value of their pension.

Meanwhile, savers hoping for a big increase in tax-free Isa limits had their hopes dashed. In the face of collapsing interest rates paid to savers – thanks in part to the government's Funding for Lending scheme – pensioner and other groups had called on Osborne to raise significantly the amount savers can put in tax-free Isas. This would have helped to offset the impact of record low rates.

Instead, he raised the overall Isa contribution limit by less than inflation, to £11,520. The new limit, up from £11,280, comes into force next April. Half the new limit, £5,760, can be placed into a cash Isa. Last April the Isa limit rose by £600.

Osborne also said the government is consulting over whether to allow direct investment via an Isa into smaller and start-up firms, listed on the Alternative Investment Market, a move he said would boost enterprise.

Article source :http://www.guardian.co.uk

George Osborne: "This is a direct boost to incomes … we are within touching distance of the £10,000 personal allowance

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us On Facebook 

10 things you can do today to have a great tax season

Many tax practitioners focus on improving their efficiency during tax season, but there are plenty of things they can do in advance to ensure success from January to April, according to 2020 Group chairman and CEO Chris Frederiksen.

Our team 

1. Make sure you have good scanners. He recommends the Fujitsu 6130, which scans up to 50 pages a minute, duplex, and offers despeckling and decrumpling, among other features. "You're going to scan at the front end," he said. "The days of having people with lots of stuff to key off, those days are over with. We scan everything at the front end."

2. Get multiple monitors. "Go home tomorrow and buy another monitor. It's ridiculous to have just one monitor. You've got to have at least two," he said, noting that at his office, staff have three, and they're contemplating moving to four, while a McKinsey study says that knowledge workers are most productive when they have six. He also described a portable monitor that can hook into the USB port on most laptops.

3. Software: scan, organize, populate. Make sure you're using tools that do these things. "Clients bring in their stuff -that's the polite word for it -- and normally this 'stuff' would go to a tax preparer and they'd sort it and move it around and copy it and put yellow stickies on it and highlight it," Frederiksen said. "No more -- now it goes to the administrative person who does the scanning. He counts the number of sheets, runs them through the scanner and makes sure the scanner sees the same number of pages. Then we upload it to [a service like 1040 Scan or GruntWorx]. They put all the documents in the correct order so they follow the organizer." When the file is returned approximately 10 minutes later, the practitioner takes care of the miscellaneous items that the system can't recognize. The system also takes the numbers from the source documents and populates them in the tax return. "We find it populates approximately 60 percent of the return," he said. The services are generally priced per return.

4. Send direct mail to homeowners. Frederiksen said that he gets most of his clients from direct mail. He buys lists of all the new homeowners in his area (a number of companies provide them, but his firm uses Homeowners Marketing Services). He generally sends as many as five letters - an introductory letter, a letter on December 1 offering a free half-hour consultation, a letter on February 1 offering a 10 percent discount if they come in before February 15, a similar letter on March 1, and a final postcard on April 1. "It's the best two weeks in the year to get new clients," he said.

5. Thank-you letters. These should be sent out within five days of completing a client's return, and ask for referrals. The trick is to write them out now, before January, so they're ready to mail during tax season, and also to include at least two business cards for the client to give out to friends and family: "You've got to make it easy for people to refer business to you," he said.

6. Tax organizers. "We are big believers in tax organizers as a marketing device," Frederiksen said. His firm sends full electronic organizers from its tax prep software, but it has also created a condensed, four-page organizer, which often helps drive referrals. Among other things, they printed up 5,000 and had them inserted in a local paper on February 1. "It wasn't a stampede of new clients, but it certainly paid for itself, and it helped in terms of our branding," he said.

7. Create an audit prepayments and correspondence program. As an add-on at 10 percent of your fee, or $100, offer to cover any audit, and to deal with "nuisance mail" from the Internal Revenue Service. Very few clients will get audited, so it's worth the risk. He also recommends offering new clients a guarantee on all prior returns for $350. "What are my odds that they're going to get audited?" he asked.

8. Preschedule mail-ins. Tell clients to send information in by February 25, even if they don't have everything ready.

9. Preschedule appointments. "You can spend a huge amount of time during tax season messing around with appointments. You end up with all of this phone tag going back and forth," Frederiksen said. Clients should be prescheduled, with a postcard that includes a map of your location. "They want to know how to find you, and what to do with their car when they get there," Frederiksen said. You should have someone on your staff follow up both the week before and the day before.

10. Expand your capacity. Because of the shortage of skilled preparers, Frederiksen said that there will only be about a third of the preparers available that the industry needs, so practitioners may want to start exploring outsourcing returns to India, and locally through firms like Xpitax and SurePrep.

Azure Global’s vision is to be widely recognised as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us On Facebbok