What The Fiscal Cliff Deal Means For Startups

What's Next In Payments®
3:30 PM EDT January 2nd, 2013

Most Americans were concerned simply with their own tax rates as the Fiscal Cliff loomed nearer and nearer. But now that a deal is in place, how will small businesses and startups be affected?

The Washington Post has a guide to seven measures that will have significant impacts – some good, some bad and some in the middle – on small businesses and startups in the post-Cliff world. PYMNTS.com’s Startup Roundup is one of our most popular features every week, so it’s important to gain perspective on how investors and SMB owners may react to the Fiscal Cliff deal.

We cover some of the Post’s more interesting conclusions below. 

The Good News

Some aspects of the Fiscal Cliff deal should help small businesses and startups. Congress extended the Research and Development (R&D) tax credit, which allows employers to continue receiving tax breaks between 6 and 15 percent for their R&D expenditures. Section 179, which gives tax breaks to businesses that lease and purchase software and equipment, was also renewed for a year. Neither measure was made permanent, but both should help startups looking to invest back into their firms in 2013, as the Washington Post notes.

Neutral News

Perhaps the most publicized and understood ruling from the Fiscal Cliff deal concerns the tax rate; namely that families with incomes above $450,000 and individuals with incomes above $400,000 will rise permanently. That means that some small business and startup owners will see their taxes jump, but many remain below the threshold. That many consumers will have more money than they would have had the Bush Tax Cuts expired could help businesses as well.

Businesses will continue to receive targeted tax breaks for employing groups such as youths and veterans under the Work Opportunity Tax Credit (WOTC), and can receive breaks for renewable energy technologies as well.

The Bad News

While most American consumers aren’t facing enormous tax hikes, the payroll tax cuts did not survive the Fiscal Cliff deal, meaning tax rates on the Social Security payroll tax will jump up 2 points to 6.2 percent.  That’s “a bad sign for small businesses who have already been complaining of low customer demand,” according to the Post. The paper also points out that capital gains rates have increased slightly to 20 percent for some high-income earners, leading to fears that entrepreneurs may become more conservative with their investments.

If you’re a small business owner or are invested in a startup, how has the Fiscal Cliff deal affected you? Let us know in the comments below.

And for additional information on Fiscal Cliff deal aspects that will affect small businesses, read the Washington Post’s complete summary here.

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