It’s too bad Hollywood limits Academy Awards to motion pictures. Although some great movies attracted huge audiences last year, the melodrama that nearly scared American small-business owners out of their wits was Washington’s frightening “Fiscal Cliff: The Disaster.”
Like most heavily-hyped adventure films, the event played out to be less catastrophic than advertised. Although, according to public opinion polls, damage was inflicted on Capitol Hill’s cast of characters whose favorability reached historic lows during the flop, and Congress and the President completely failed to address out-of-control government spending.
Despite the hoopla, the fiscal cliff’s final act did have a few positive aspects. Among them:
• The tax-rate issue, that has been hard fought by NFIB, is finally as settled as anything ever is in Washington. The final deal permanently set the top rate at 39.6 percent on income above $400,000 for individuals and $450,000 for joint filers. Existing rates below those levels have been permanently extended.
• Tax rates on capital gains and dividends also remain unchanged at 15 percent until income exceeds those thresholds, then rises to 20 percent. But note that beginning Jan. 1; the new healthcare law had already levied a 3.8 percent investment income surtax on individuals who earn over $200,000 and joint filers who earn $250,000.
• The Alternative Minimum Tax has been permanently revised and indexed for inflation, preventing millions of middle-class taxpayers and small businesses from being hit by the tax.
• Thanks to NFIB’s leadership, the estate tax was hiked five points to a maximum of 40 percent, but the $5 million exemption level remained unchanged and permanently indexed to inflation.
• Some key small business tax provisions, including expensing limits of up to $500,000 and over under Section 179, which NFIB has long sought to maintain and the reduced holding period of S-corporation built-in gains, were renewed in the bill as well. Unfortunately, these provisions were not made permanent, but were extended through 2013.
But the show must go on. April 15 is still the filing deadline, but the IRS has pushed the opening of tax season back a little due to the changes Congress made.
Small businesses filing as individuals can start filing returns Jan. 30. Those who face more complex filings such as Residential Energy Credits, Depreciation and Amortization, General Business Credit and others, may be allowed to file between late February and March. The exact date has not been announced.
Unfortunately, the financial follies aren’t over, as we’ll soon see when the deficit reduction and debt-limit debate unfolds just about the time the Oscars are handed out next month. Congress will have to tackle critical decisions about the government’s addiction to spending which affects all of us.