Category: Tax Laws


Today as I was scrolling through my usual small business bookmarks and headlines, I came upon an article from Kimberly Weisul at Inc. com. I wanted to share this article with you and weigh in on your thoughts. As a business owner myself I know I, too, am frustrated with our current regulations and the difficulties placed upon America’s entrepreneurs. These days opening up a business doesn’t seem as appealing as it once was given our ecnomic climate and the various taxes placed upon business owners that are no doubt a big hinderance to our growth and development as a nation.

Drop me a line at aaronyoung@laughlinusa.com and let’s discuss your thoughts on the article, ”The Lowdown on Obama’s Small Business Plan.”

I posted the body here so you can read it now and post your thoughts on our Laughlin Associates blog or connect with us on Facebook also at www.facebook.com/LaughlinAssociates. This is a big issue for all of us that own a small business…let yourself be heard and let’s get some changes made in 2012.

“Yesterday, President Obama presented the details behind one of his State of the Union initiatives: to make it easier for small businesses to raise money and to grow. Most of the president’s initiatives fall into two camps: those that change the nature of what it means to be a public company, and nick-and-tuck adjustments that aren’t going to make a huge difference for small businesses. 

The first set of rules, which would make it easier for small companies to raise money, is by far the most promising. These efforts already have some bipartisan support, but this Congress is hardly known for its ability to cooperate. And while some entrepreneurs will no doubt welcome the tax cuts, they’re not going to make a huge difference.

Making fundraising easier

Sites such as Kickstarter and Indiegogo have proven that crowdfunding is a viable way for small companies to raise money. But existing regulations make it almost impossible for entrepreneurs to offer shares to individuals who aren’t wealthy. Entrepreneurs who use Kickstarter to launch their company instead offer t-shirts, ad space, discounts, and whatever else they can come up with. Making it easier for entrepreneurs to actually sell shares could change the ecosystem. The Obama administration is calling for a ‘framework’ to allow this–but that’s something that’s not going to happen immediately.

Similarly, big regulations can take effect when companies raise more than $5 million. The president would raise that ceiling to $50 million. And after companies do go public, the president wants to have public-company regulations kick in gradually rather than all at once, to make going public a bit less onerous. All of these initiatives could really help small companies raise the money they need to grow.

Tax cuts that won’t matter

Then there are the tax cuts. The first, which is actually a tax credit for job-creation, is highly unlikely to persuade any business owner to make additional hires that they wouldn’t have already made. It’s just too much work to bring a new hire on board, never mind letting them go if it doesn’t work out. And financially, the tax credit doesn’t help that much: The president wants to give employers a 10 percent tax credit for new hires, but then the business will have to pay about 7.5 percent in payroll taxes for that same employee (not including unemployment tax). The only thing that will make business owners start hiring is stronger demand for their goods and services.

The president also wants to expand the range of “key” investments in small businesses that are exempt from capital gains tax. This would make a similar provision, enacted in 2010, permanent. This will only be meaningful if the range of eligible investments is dramatically expanded. Currently, the investment has to be in a business structured as a C corporation. Given that all 50 states have passed LLC legislation, that excludes a lot of businesses. Businesses that rely upon the skill of the owner don’t make the cut either, which means entire industries such as financial services, consulting, and engineering are excluded. Plus, the exemptions from capital gains apply to those who invest in small companies–which is not necessarily the entrepreneur.

The other tax cuts are more straightforward: Letting business owners deduct $10,000 (rather than $5,000) in start-up expenses, and allowing business-owners to take 100 percent depreciation on some equipment in the first year.

Then there’s the president’s proposal to add $1 billion to the amount of federal funding available to SBICs, or Small Business Investment Companies. SBICs invest money in small companies, and do a pretty good job of channeling that funding to low-income areas or minority or women entrepreneurs. In 2011, 34 percent of SBIC investments went to companies that fit one of those descriptions. These investments have a great track record of repayment. Why argue with this one?

Helping entrepreneurs right from the start

To really help entrepreneurs get a fair shake from the tax code, the president should seriously consider a long-time proposal from the National Association for the Self-Employed: Stop penalizing self-employed people (and entrepreneurs who have just taken the leap to start out on their own). They can’t deduct their healthcare expenses the way big companies can and they pay both the employer and the employee share of the payroll tax. Ideally, self-employed people will eventually build their companies and hire others. It’s tough enough for them to get health insurance, credibility, and everything else needed to run a business. Instead of giving them a hand, we’re handicapping them right from the start.”

*Thanks to Inc.com and Kimberly Weisul for this content.

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IRS Reminds Parents of Ten Tax Benefits 

Your kids can be helpful at tax time. That doesn’t mean they’ll sort your tax receipts or refill your coffee, but those charming children may help you qualify for some valuable tax benefits. Here are 10 things the IRS wants parents to consider when filing their taxes this year.

1. Dependents: In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit: You may be able to take this credit for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit: You may be able to claim this credit if you pay someone to care for your child or children under age 13 so that you can work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit: The EITC is a tax benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. IRS Publication 596, Earned Income Credit, has more details.

5. Adoption Credit: You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents.  For details, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with earned income: If your child has income earned from working, they may be required to file a tax return. For more information, see IRS Publication 501.

7. Children with investment income: Under certain circumstances a child’s investment income may be taxed at their parent’s tax rate. For more information, see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher education credits: Education tax credits can help offset the costs of higher education. The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar. See IRS Publication 970, Tax Benefits for Education, for details.

9. Student loan interest: You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970.

10. Self-employed health insurance deduction: If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child was not your dependent. For more information, see the IRS website.

This last one is a good tip to ask a Laughlin Associates business consultant about. As the leading incorporation services provider since 1972, we can help you as a small business owner to get the most out of your tax deductions. In fact, if you’re self-employed we can help you get as much 45% back on your taxes this time next year. Want to learn more? Call Laughlin Associates at 1-800-648-0966 or email lee@laughlinusa.com.

*Tips provided by IRS.gov

About a year ago I wrote a post regarding an initiative in Oregon to raise corporate taxes. The marketing for the ballot measure told grass roots voters (i.e. mostly non-business owners) that corporations were paying only $10 a year in corporate taxes and that it was time to make the greedy “corporations” pay their fair share. Of course the bill passed and unemployment went up in Oregon. As a matter of fact, Oregon still has one of the highest rates of unemployment in the United States. So, it was great to read this morning that the tide appears to be changing on the topic of corporate taxes, at least on the federal level. The Wall Street Journal is reporting that Pres. Obama and the new Republican House of Representatives are coming together to find ways to reduce taxation on businesses. They are acknowledging how the federal tax system is killing our competitiveness around the globe and claim to be committed to fixing that.

Government players now need to put aside their constant bickering and actually find a way to bring tax relief to employers. If they can do so then promise of significant economic growth beginning this year has got some horsepower behind it.

The fact is that when you put money back into the hands of business owners they plow the money back into building their business. A recent Bloomberg poll showed that there were 297,000 new jobs created last month. 270,000 were created by companies with less than 500 employees. Of that group, over 117,000 were created by companies with less than 50 employees. This is further evidence that small business really is the engine driving America.

To read the WSJ article on lowering taxes visithttp://online.wsj.com/article/SB10001424052748703675904576064052401692010.html?mod=WSJ_hp_LEFTWhatsNewsCollection

To see the Bloomberg poll go to http://noir.bloomberg.com/apps/news?pid=20601087&sid=aEh4eGZyAt1Y&pos=1

I just attended a really great summit at the Flamingo Resort in Las Vegas. It was presented by eCommerce Merchants, the premier industry association for online retailers. In attendance were senior executives from the all over the web including eBay, Amazon, Overstock.com and hundreds of stand alone online shopping platforms.

I was there at the invitation of the eCommerce Merchants Board of Directors. A member of that board, David Hardin (he owns Shoetime, one of the biggest shoe sellers on the web) had attended the Laughlin Associates seminar last month in Las Vegas. At that time he told me that his industry desperately needed what Laughlin was teaching and asked me to come attend the summit. Boy, am I glad that I did. First let me say that I was blown away by the level of cooperation, support, and sharing of “secrets” that I observed among this group. They seemed to really want to help each other grow. They believe that brick and mortar is fading and that digital distribution will soon eclipse the old tried and true.  That the local mall is on its way out and that Amazon and its competitors are taking charge of the online capitalistic party. These folks make a pretty good argument and are willing to overlook their own competitiveness for a few days in order to help ensure that this dream of online, retail supremacy come to fruition.

I got the chance to visit with dozens of the key players at the event and the primary issue relayed to me from these industry leaders didn’t come as a surprise at all. They said that many e-commerce sellers had started out working from their kitchen table and that even the companies that had become super-successful sellers hadn’t ever done the foundational work to make their enterprise into a real business.

Four questions they (and all business owners) should ask themselves:

Without doing this work the owners of these companies would never be able to truly develop, protect, grow, and eventually sell or pass down the business that they had built.

These web entrepreneurs have fallen into a trap that many small business owners find themselves in. They are really good at doing some sort of job. They hang out their shingle and start doing that job for themselves instead of for an employer. They become successful. Everything is rosy until they are challenged. Maybe it’s an audit, maybe a lawsuit, maybe a partnership or marriage breaking up. Whatever the situation, the person who was doing great at doing what they did great was now in hot water. They might even lose everything they had built and all because they didn’t build the business on a solid foundation.

It doesn’t matter which industry you are in. In every case you, as a small business person, must do smart things to look out for your business. There is no outside Board of Directors looking over your shoulder. No attorney, CPA, or consultant that is going to push you to do the work that is required to survive. Don’t leave it to others to hold your hand through the boring but necessary issues that you must deal with in order to defend yourself if your business is ever challenged. I just met hundreds of smart people who are doing big sales in cyberspace. Most of them admit that they need to do better at building their foundation. So now, be honest; what kind of foundation is your house built upon?

Today, the State of Oregon joined other high tax states in choosing to have their huge budget hole filled by the least number of people possible. Measures 66 & 67:

  • Increase the minimum corporate tax by over 1000%
  • Increase the state personal income tax by almost 20% for people making over $250,000 per year.

The TV ads made it clear to the masses that “If your family makes less than $250,000 per year, you will pay nothing!”  Translation? Let the business owners pay the bill.

It will come as no surprise to you that the city of Portland and the state of Oregon are struggling to attract and keep new businesses. Rather, long time businesses are scrambling to leave Oregon and are moving to neighboring states like Nevada

  • Where taxes are low and…
  • Legislation is geared to encourage the formation of companies and to protect their management teams.

I have an unusually good seat from which to watch all of this unfold as I live in Oregon and work in Nevada. At my company we have seen this exodus for years as California companies move over the boarder to set up shop in the Reno area.

My son Adam, who was sitting in a college business class this morning when he heard the news about passage of the tax hike, texted me and asked, “What does this mean for us?”  I think he asks a good question. As business owners, we need to do our part to help our communities. The trouble is that too many politicians have never run a business or had to make a payroll. They make decisions that attempt to fix an immediate problem, but end up hurting everyone in the long term. They cook the goose that lays the golden eggs.

We all know that in the end it will not be the “wealthy” that will pay for this tax increase. The rank and file employees will take the hit.  Jobs will evaporate and employers will have to cut back, close up or move on.

“What does this mean for us?” I would like to hear your answers to that one.