In light of the fiscal cliff deal, some tax cuts from the Bush era will remain in place, while other rates will increase and others will change only if income of individual filers changes. Financial investment advice may fluctuate for firms that are are about to see their filing statuses change due to these issues, and in some cases, corporate flexibility could be seriously harmed.
Problems with taxes
The Wall Street Journal reported that companies currently operating with S-Corp status, which saves these firms from having to file federal returns, may still harm owners if businesses make enough money. Since income is taxed through the individual owners instead of the firm, it could save filers money.
But above the $400,000 income cap, that may no longer be the case. Some owners are considering whether a financial plan adjustment should be in order to change from S-Corp to C-Corp status, though this too would result in a number of monetary changes. Instead of paying a tax rate of almost 40 percent as a personal filing, the Wall Street Journal wrote, business owners have the option of transitioning to a C-Corp and paying both through the firm and as a personal filer. This will change how much each partner technically made during the year and what amount was earned by the corporation.
Carefully assessing cuts
The matter could be further complicated by the increased tax liability each company will incur to handle new healthcare laws. Companies with 50 or more full-time workers may be required to pay higher premiums than before to cover mandatory insurance coverage for the entire workforce, and in response, some businesses are changing over to part-time and temporary personnel.
Kaiser Health News wrote that this could have a very negative impact on employee engagement and retention. While many businesses prefer to save money and cut costs wherever possible, a healthy financial plan will need to retain benefits like these for staff members, even if it's more costly, or risk losing top professionals. The source wrote that other reductions in pay or worsening job elements can be tolerated by employees in some cases, as the allure of healthcare during economically troubled times carries a very strong pull.