Fiscal Cliff Deal: What It Means For Your Small Business

January 4, 2013


The fiscal cliff deal is a huge policy recently passed by Congress that essentially sets up a new tax structure for the coming years. It was designed to hit the “wealthiest Americans,” but its effects could spread across the board. Simply put, the fiscal cliff deal involves a series of tax increases and spending cuts over the next decade that will theoretically lead to $7 trillion circulating through the economy. So what does this mean for your small business? Let’s take a look:

Your customers may have less money.

One of the primary components of the fiscal cliff deal is the expiration of Bush-era tax cuts. The breaks that most middle-class Americans were getting on their taxes will fade away, leaving those individuals with less spending cash each month. For instance, most blue collar workers will have to pay 2% more in payroll taxes, starting in 2013. Married couples will no longer get a tax break for being a couple, forcing them to pay more on their taxes each year than they would as individuals. All of this means that some of your customers will have less money to spend on your services and products.

There may be more taxes to come.

Even though the fiscal cliff deal was originally designed to protect the middle class, it is likely to result in new taxes they have to face. More importantly, the results of the fiscal cliff deal are only temporary. This first round of legislation is supposed to spark a series of tax adjustments for the next few years, which could be detrimental to America’s already shaky economy. Only time will tell what that might do to your business.

At the moment, your small business may not suffer much at all from the fiscal cliff deal. Once the next tax season hits though, it’s possible you’ll see a decline similar to that of 2008. Once people realize that their paychecks are shrinking, they may lose the ability to spend as much money. You will have to make adjustments to help them regain that confidence.

Keep an eye on the news in the months to come to see how this deal may change over time. If you are prepared well in advance, by allotting more money to your savings and taking on extra work when you are able, you won’t have to worry as much if the situation changes, even drastically.

You should be safe…for now.

In the midst of the fiscal cliff deal, Congress has redefined the line between the middle and upper classes. Being “rich” in the government’s eyes used to mean making $200,000 a year as an individual or $250,000 as a couple. Now, those numbers have jumped to $400,000 and $450,000, respectively. This means that – while you never know when congress might adjust self-employment tax rates – your small business income should hopefully be safe from serious tax increases, at least for now.

Editor’s note: This article was originally published with an error causing confusion among readers, mistakenly referencing the “fiscal cliff” instead of the correct “fiscal cliff deal”. We apologize for the mistake and the article has now been corrected.


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