An Obama White House and your business

If you are a small business owner you might be wondering what it is that Obama plans on doing to your taxes. The reason that so many people are left wondering about what Obama is going to do is because of how McCain has managed to spook anybody who owns a small business. What McCain is saying and what people are actually hearing and understanding are two separate things. The reason for this is that all that people are hearing is that taxes on small businesses are going to increase if Obama wins the White House. They are not bothering to find out about the details of what Obama's plan is before they freak out. In actuality, only about 2% of small business owners are going to end up paying more under Obama's plan. This is a small amount of business when you think about the fact that there are more than 22,659,000 small businesses in the United States.

So while it is true that Obama has proposed a tax increase on the top two income rates for small business this does not mean that all small businesses are going to be affected. In addition, according to business and tax experts majority of the small business owners out there have nothing to fear about if Obama is elected to the White House instead of McCain. Regardless of what you have heard about Obama and his tax changes you need to be aware of the three main problems with how McCain views Obama's plan so that you can better understand how Obama being in the White House will affect your business.

The first thing about this plan is how McCain defines a small business. According to McCain Obama's plan is going to include anybody who files a Schedule C, E, and F with their taxes, which is a rather broad definition of a small business. The reason that the definition is so broad is that most people who actually file these types of forms do not actually run a small business for a living. The reason for this is that these forms are also used to report income from a variety of other sources including freelance work, consulting work, real estate rentals, and other non-salary sources. In fact, both McCain and Obama file a Schedule C because they have to claim their book royalties. In 2005, according to the IRS there were 21.5 million Schedule C returns filed.

Fortunately, Obama does not use this broad definition of a small business. Obama's definition is much more realistic and goes along with how the Small Business Administration sees things, which the Small Business Administration's definition actually comes up with fewer small businesses than McCain's broad definition. According to the Small Business Administration in 2005, there were 6 million small businesses that had fewer than 500 employees and that had staff on the payroll other than the owner of the business. Therefore, the Small Business Administration views small businesses as having at least one additional employee on the payroll besides the owner of the business, but at the same time, they cannot have more than 500 employees.

Now that you know and understand, what a small business is defined as for Obama's plan the next thing that you need to figure out is who is going to pay these tax increases under Obama's plan. In fact, even if you were to use McCain's broad definition very few small business owners would have to pay more in taxes under Obama's plan. The reason for this is that most of the taxable income for small businesses comes from a small number of wealthy businesses. In fact, out of 34.7 million filers with a business income that is filed with a Schedule C, E, or F only 479,000 filers will actually fall into the top two brackets, which leaves the other 34.3 million small business owners unaffected, according to the nonpartisan Tax Policy Center. In all actuality, only 14% of small businesses have an income of $200,000 or more each year, according to the National Federation of Independent Business.

So even if you are one of the few business owners that makes $250,000 a year or more you are going to be affected by Obama's planned tax increase, but this does not mean that you are going to see a huge increase in your tax bill. According to McCain Obama is going to "increase taxes on 50% of small business revenue", but this is not true because of the way that the income is actually taxed. For small business owners they are only going to pay the higher taxes on the income that they make that goes over the cutoff.

What this means is that just because your business earnings fall into the top two tax brackets that does not mean that all of your income is going to be taxed at the highest level. For example, let us say that you make $210,000 a year, which puts you in one of the two top tax rates that Obama wants to raise. What this means is that your tax rate is going to be either 33% or 35%. However, under Obama's plan the small business owner would only end up paying the higher tax on the amount that exceeds the cutoff. In 2007, the two top rates applied to single filers who had an income of $160,850 or more and applied to joint filers who had an income of at least $195,850. Therefore, if you were a single filer under Obama's new plan you would end up paying $1,475 more in federal taxes, which in effect raises your 33% tax rate to 36%.

However, Obama is not only going to affect small businesses because of tax increases. Obama also has a plan that he is trying to put into place in order to help small businesses get by during this rough economy. In fact, Obama has actually already proposed a plan for emergency assistance to any small business that is in danger because of America's financial crisis. The plan he is calling for is a "small business rescue plan" that is full of tax incentives and loans. The main reason that Obama is looking to rescue these small businesses is that "small business employ half of the workers in the private sector in this country, and account for the majority of the job growth", direct from Obama at the rally in Chillicothe, Ohio.

Obama's rescue plan calls for the Small Business Administration's loan guarantee programs to temporarily eliminate the fees that they charge to lenders. However, it also calls for the agency to increase the guarantees that it offers to banks that are willing to lend to qualifying small businesses. In addition to these two major points Obama wants the Small Business Administration to expand its facility for directly lending money to small companies through its Disaster Loan Program.

The Disaster Loan Program usually assists businesses that are affected by natural disasters, including floods, hurricanes, and even earthquakes. Nevertheless, the good thing about this loan program is that it can also be used to help small businesses that are facing nontraditional disasters, such as not being able to meet their operating expenses due to a vital employee serving overseas in the military. This type of loan program is usually only used for small businesses that cannot get loans from other sources. The benefits of the loan program is that they interest rates for these loans are capped at 4% and the terms can be for up to 30 years, which makes it easier for the small businesses that are struggling to pay off the loan each month. Not to mention that this loan is done directly through the Small Business Administration, which leaves the businesses free from having to secure the loan through the bank and having the Small Business Administration offer a guarantee for a part of the loan.

In looking at this rescue plan Obama has actually compared it to what the government did after the terrorist attacks on September 11th. After those attacks, the government stepped in to rush financial assistance to any of the small companies that were affected by the attacks. What Obama is trying to do is to rely on the lower fees and the higher guarantees to help entice the banks to open up and lend more cash to small business because as the financial situation gets worse the banks have gotten even more reluctant to allow small businesses to borrow any kind of cash. In fact, in July 2008 The Federal Reserve's Senior Loan Officer Opinion Study discovered that out of all the banks that it polled 65% of them had tightened their lending standards for small business loans in the last three months. Not to mention that the Small Business Administration said that the number of loans that made it through the 7(a) program in the 2008 fiscal year actually dropped 30% from 2007.