They say there are two certainties in life: death and taxes. Only in this case, we are dealing with additional taxes needed to feed the Fed and somehow reduce our enormous national debt. (If you believe that one, I have a bridge to sell you!)
I know you’re sick and tired of hearing about the fiscal cliff, but it is a real issue that could affect your industry along with many others. By the time you read this, Congress will have hopefully come up with a program its members can all live with, even though it won’t be close to what’s required to solve the problem.
As I mentioned in a previous article, two separate construction-related economists suggested that a failure to get something done by December 31st will have a direct bearing on the future of the construction industry. If an agreement is not reached, there is a good chance that a robust recovery in your industry will get pushed out another 18 to 24 months.
Know Your Position
If you haven’t been contacted by your tax professional to review where you stand for 2012 and 2013, I suggest you find a new one. Go find a pro who spends a lot of time in your space. I have to tell you that I keep up to date on tax issues and these changes are really tough to get a handle on. Not knowing what to expect for a tax bill and the options you have to mitigate that bill, is a place you don’t want to be.
If you need a pro to help you out, send me an email at firstname.lastname@example.org and I’ll refer you to a couple who understand your business, as well as the proposed tax regs. And don’t think your tax person has to have an office where you live; they don’t anymore.
A significant number of current tax provisions are set to expire at the end of 2012, both for individuals and businesses. When I reviewed the list of expiring regs, a number of them pertained to construction in some shape or form.
While the changes are expected to escape the middle class (whatever that is), other expiring regs will hit just about every taxpayer who gets a paycheck. For example, the employee rate for Social Security Tax, now at 4.2%, is scheduled to revert to 6.2%. I bet the middle class is included in this change.
Bonus depreciation and Section 179 expensing is at 50% bonus and a $125,000 expense deduction, respectively. In 2013, the bonus disappears and the 179 expense level falls to $25,000. If you purchased equipment in 2012, you still have the option of using the higher rates. Then again, you may decide not to if you want to push the deductions into 2013 where your tax rates may be higher. This type of issue is what you should have discussed with your tax professional, along with many others before it is too late to take action.
Then we come to the taxes to help pay for Obamacare. If you have joint income over $250,000, there is a potential 3.8% tax on investment income and an added .09% Medicare surcharge. And we haven’t even mentioned the “tax” related to the health insurance aspects coming down the road.
It would take a book to cover these potential tax changes and we don’t have time to cover the changes in detail. Needless to say, you have a number of decisions to consider in terms of when to take income, when to generate tax expense and when to sell equipment, to name a few, if you hope to avoid surprises when you file your 2013 tax return.
A Couple More Tax-related Issues
There are a couple of other things I want to mention. First, the 2012 Tangible Asset Regs, which require you to document your repair classification policy, have been delayed until 2014. You can implement it this year if you wish. The reg basically requires a policy on what repairs need to be capitalized rather than expensed, and also requires you to capitalize a portion of equipment purchases to cover your cost of purchasing.
Second, the FDIC unlimited guarantee on non-interest-bearing bank accounts expires on December 31st., and will revert back to $250,000. If you have balances that exceed $250,000 in your accounts, you had best review your alternatives to protect your assets. With everything that’s going on, you never know when any bank may wind up being insolvent.