Small Business Tax Rates – The Obama Proposal – Is it Fair?

In the past few weeks there has been proposals put forth by President Obama to lower the corporate tax rate which at first glance looks great for the small business manufacturer but upon a closer look isn’t as good as it sounds.

The problem is that most of the breaks would only benefit a small number of companies. In the end it will leave many business owners with a higher tax bill. The plan calls for the corporate tax rate to drop from the current 35% to 28% with manufacturers being capped at 25%

The reduced rate however only applies to larger “C” corporations structured like fortune 500 and larger companies that pay taxes on the money they earn. The majority of the small businesses are set up as sole proprietorships, partnerships, LLC’s and S corporations where the earnings from the business are passed through to the owners who report this as income on their 1040 returns and pay the tax. Only 25% of all small businesses are set up as C corporations.

In most cases the small business has a higher tax rate. If the total household income rises above $250,000 the federal tax rate on income rises to 39.6% in 2012. Many business owners are in this group since many are two income households. The proposal makes little sense because it is not a comprehensive one.

The good things to come from this proposal include some real concerns of business owners. It calls for a permanent increase to $1 million in the Section 179 deduction for purchases of equipment such as computers, vehicles and manufacturing machinery. The deduction has fallen to $125,000 in 2012 from $500,000 in 2011. It’s scheduled to drop to $25,000 next year. However, most small businesses are unlikely to spend a million dollars on new equipment in one year.

The proposal also doubles to $10,000 the deduction that an entrepreneur can take for money spent on starting a company. It also allows more companies to use the simpler cash method of accounting.

The only way to gain true reform in the corporate tax structure is to overhaul the entire system with broad reforms and include individual taxes as part of an overall solution. It’s time this country stops giving handouts and breaks to only the biggest and turn their attention to the majority which are the small businesses.


About e3consulting

Welcome to E3 Consulting. As proven experts implementing the latest CRM, ERP and Accounting Software in the Manufacturing and Distribution industries, we have made it the goal of our business to help our clients obtain the bottom line results their individual companies require. Educate, Enable and Empower For companies in the manufacturing and distribution industries, the ability to simplify their business operations is vital to their ability to succeed. E3 Consulting will provide the consultation; technology and the project management tools that companies need to improve their business processes and their bottom line. What We Do Does your company need a revamp of existing business systems? Do you have a technology project that is going beyond time and over budget? Are your costs out of control and productivity lagging? When you contact E3 Consulting, we take a hard look at the reality of your business operations and break it out into segments, to find out which aspects of your business process workflow need attention and which are working as they should be. It is our intent to look at your operations, your accounting, your workflow and your technology and create a cohesive plan that will have your business running effectively and efficiently. Our Process Every company runs differently, and it is those processes specific to your business combined with your workflow goals that give the staff at E3 Consulting the canvas we need to use our long history of business development, project management and technology to map out the path your company needs to follow to improve your bottom line. Think of your business like a lego block structure. Each block that is missing reduces the stability of your company. We can look at your overall operations and use our knowledge of the marketplace cutting-edge technologies to find the blocks that are missing from your overall business concept. We will introduce the right technology tools to improve your operations, and then continue in a project management position as necessary to ensure ongoing smooth operations. Our Experience E3 Consulting has a long and successful history of project management, business operations consultation and technology implementation and management within Manufacturing, Distribution, Service, Healthcare, Finance and Accounting businesses. Principal, Brad Tornberg, is a successful technical and business expert with an MBA in Finance from Farleigh Dickinson University and. He holds Microsoft Certifications for Customer Relationship Management (CRM) sales, implementation and training. He also has a series 6 and series 66 securities license and a New Jersey Life and Health License. He is well published having written many articles for The Practica
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