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The Fiscal Cliff: What Small Business Owners Need To Know

You can’t turn on the news or log online without seeing stories about the impending “fiscal cliff” and how it will impact consumers, small businesses and the US economy as a whole. With so many statistics and differing opinions, it’s hard to get an accurate picture of what is going on, and what might happen in 2013 and beyond. Here at Balboa Capital, we decided to research the fiscal cliff and write about it for our equipment leasing blog. Just like the majority of our customers who rely on us for equipment financing and small business loan options, we remain optimistic about the economy and think the fiscal cliff will be avoided.

What is the Fiscal Cliff?
The fiscal cliff refers to a whopping $500 billion in increased taxes and spending cuts for fiscal year 2013 that are scheduled begin on the 1st of January. In order for the fiscal cliff to be avoided, a new plan to reduce the deficit needs to be agreed upon by Congress. $500 billion is approximately 4% of gross domestic product in the US.

Proposed Tax Increases
There will be quite a few tax increases if a new deficit-reduction plan isn’t put into place. Nearly every American taxpayer and business will see increased taxes. The tax reductions from the Bush administration are scheduled to expire, as is the payroll tax cut that has been in place since 2010. Should taxes increase, consumers will have less cash to spend, and business owners will have less capital to reinvest in their companies. Finally, taxes on capital gains and dividends are also scheduled to rise, and this could affect investors and public companies alike.

The Small Business Effect
The prospect of new tax increases is cause for concern for any small business owner, even though there are signs that the economy is rebounding. Small businesses are the driving force of the nation’s economy, and increased taxes can affect their bottom line and hinder growth. Plus, more taxes could result in fewer new jobs being created.

Proper Business Planning is a Must
The key to running a successful small business is planning. And we don’t just mean the business plan that you create prior to launching your company. Your business plan is the roadmap for your company’s success, and it needs to be periodically modified in order to react to changing market conditions. It’s also a good idea to revisit your business plan when you introduce new products or services, or when new competitors enter the marketplace.

With the possibility of increased taxes looming, small businesses nationwide are planning for 2013, and many of them have already put their plans into action. One strategy is to acquire new business equipment and put it into service before December 31, 2012 in order to take advantage of the Section 179 tax deduction. From now through the end of the year, the Section 179 deduction limit is $139,000, and it will drop to $25,000 next year. You don’t need to buy your equipment outright, either. Just look to Balboa Capital for an equipment financing program that enables you to acquire your new or upgraded equipment for an affordable monthly lease payment. To get started, use our free online equipment lease calculator.

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