Planning for Obama's Tax Changes

Coming in 2009: Changes that will affect your tax bill. President Barack Obama has big plans for tax reform, and some of those plans are aimed at giving small business owners tax relief.

Tax experts say we'll likely see a major tax bill passed this year, which could apply retroactively to the beginning of 2009. If Obama can get the changes he wants, taxes will rise for families with incomes of more than $250,000 or so and be reduced for those earning less.

Here are some of President Obama's tax plan's key points that affect business owners:

• High-earning sole proprietors and owners of S corporations and other pass-through structures are directly affected by the income their business collects. If your business income is high, you're in danger of finding yourself in a higher tax bracket. Obama has proposed hiking the two top tax brackets from their current 33 percent and 35 percent as high as 36 percent and 39.6 percent. As the year progresses, keep tabs on your income and expenses. Consider making any business-related equipment purchases you've been contemplating to increase your deductions. On the income side, if you're nearing a higher tax bracket, consider slowing collection of accounts receivable or delaying signing new contracts to reduce 2009 income, especially if you think next year’s income will be lower than this year’s.
• Business owners may want to defer plans to hire new workers until it's known whether new breaks for hiring will take effect this year or later. Obama has proposed adding a $3,000 tax credit for each additional U.S. employee you hire.
• If you're contemplating starting a company or expanding one domestically, you may get a boost from Obama’s tax plan. In an effort to reverse the tidal wave of offshoring and outsourcing, Obama wants a new tax credit for business owners who start or grow their company within U.S. borders.
• Consider paying more of employees' health-care premiums and starting a retirement plan with matching contributions. Business health-care payments may get a tax credit of as much as 50 percent of the premium price.
• Owners of businesses that rely heavily on research and development for new products and innovation should get a little peace of mind with the Obama plan. The president proposes making the research and development tax credit permanent, ending the annual uncertainty in recent years of whether the credit would expire or be renewed by Congress.
• The search for venture capital may get easier. Under the new plan, capital gains tax would be eliminated for venture capitalists who invest in small and startup firms. Obama also proposes eliminating capital gains tax on entrepreneurs who inherit or sell businesses.
• Thinking of going back to school to gain more business acumen? The tax plan calls for a 100 percent tax credit for the first $4,000 of qualified tuition expenses, expanding the college write-off from current levels.
• If your company owns vehicles, consider buying a highly energy-efficient one. Obama proposes expanding the tax credit to as much as $7,000 for purchasing such vehicles.
• If you have overseas operations, it's a good time to review how you pay taxes on that part of your business. Obama promises to tighten up on overseas tax shelters and increase penalties for shelter abuse; so now's the time to consult a tax expert. Make sure you are in full compliance with all requirements to pay U.S. tax on foreign-based operations.
• On the personal-finance side, high earners who own stock might consider selling some losers off to reap the tax write-off from any net losses. Also consider making more charitable donations to reduce your net income.