Cry Over the Election

Yesterday I had six panicked e-mail and telephone messages from business owners despondent over the results of the presidential election.  Some of these people won't even be impacted by increasing taxes.  They don't make nearly enough money.  In fact Mitt Romney would probably consider them part of the 47%.  All they know is that they have been told to panic over the President's reelection.

Here's some free advice.  The election's over.  It's time to put on your big boy panties and move on.  Shortly, I'll have some advice for continuing to prosper in a increasing tax rate environment.  But first, I have a few more paragraphs of ranting to put you through.

Here's a message to my fellow Republicans.  There will NEVER be another Republican president until we realize that the country is fifty percent female.  The vast majority of women are pro choice or anti anti abortion.  Use whatever dumb ass label you like.  Women will not even seriously consider voting for a pro-life or anti abortion candidate - more dumb shit labels.  Abortion was a wonderful political topic for the twentieth century.  But now we are in the twenty-first century.  The party needs to move to this century as well.  This topic is settled, because more than half of the country favors abortion.  That is how a democracy works.  You don't always get your way.

Here's another hint for my fellow Republicans.  We have to have a reasonable position on immigration.  We have no problem paying illegal aliens to mow our lawns.  We just don't want them voting.  Not surprisingly, a lot of people, apparently a majority, don't find this reasonable.  We need to stop deciding who we want to exclude and start considering whom we should be recruiting for citizenship.  Again, a little living in this century would help.  My wife read this and pointed accusingly at me.

While our beloved Republican Party drones on debating topics from the last century, we miss opportunities to improve business conditions.  Let's discuss the FCC for a moment.  FCC stands for Freaking Censorship Commission.  No I cannot bring myself to use the real "F" word, but feel free to insert it.  They are far more concerned about whether a Howard Stern clone shouts "penis" on the radio than they are about the quality and price of our cell phone service. 

We should be pressuring them to separate selling cell phone service from selling cell phones.  The service would improve and the price of both would go down.  We also need to pressure them to make wi-fi and broad band ubiquitous across the country.  These are issues that truly affect business growth in THIS century.

 

Enough ranting.  We have the government we deserve.  I would like to blame the Democrats for that, but we are more to blame.  We let the religious whack job wing of the Republican Party choose our candidates.  And they lose - deservedly.

 

Here are some thoughts on continuing to prosper in a higher tax environment.  First, quit obsessing over taxes.  The most important part of running a small business will still be earning a profit.  Yes, you will keep less for your efforts, but the effort you spend worrying about taxes is effort better spent growing your revenue.

Second, do everything you can to defer income until we get a new tax regime.  For the past few years, I have been advising against section 1031 exchanges.  A 1031 exchange is the exchange of one asset, where you have a gain, for another asset.  When you do that, you get to defer the taxes on the disposition of the first asset until you sell the second one.  This used to be a popular real estate strategy to defer taxes.

For the past few years, I have recommended against this strategy, because the long term capital gains tax rate was only 15%.  We are now almost certain the capital gains tax rate will increase in 2013.  If you did an exchange in 2012, you gave up the 15% tax rate in favor of a higher tax rate later.  That wasn't a particularly bright strategy.  Undoubtedly the clients, who didn't take my advice, will call to bitch at me soon.

Starting in 2013, section 1031 exchanges now make a lot of sense.  If the capital gains tax rate goes to 28% or more, why not gamble that rates may be lower in four years.  If nothing else, the time value of money will make the taxes hurt a little less in the future even if the tax rate doesn't go down again.

Third, C corporations may come back into favor for small businesses. I'm not certain about this.  So stay tuned for more on this as we know more about what will happen to corporate tax rates.  There has been a of of talk about decreasing corporate tax rates and removing the incredible array of special interest deductions and credits that large corporations use to basically pay no taxes.

I have recommended against C corporations since before dinosaurs roamed the earth, which was only 5,000 years ago if you believe Sarah Palin.  The double taxation on profits, even with a 15% tax on dividends, made S corporations a better tax choice.  With lower corporate tax rates, the math may change my recommendation.  As you know, I'm all about the math.  There may also be some special provisions to lower the taxes on the sales of small C corporations.  I'll be certain to let you know as this develops.  It's the least I can do since you are kind enough to put up with my rants.  I will have more suggestions as we know more about tax law in 2013 and beyond.

On Election Day, I tried to impose my solution to the immigration problem.  I stood in front of my polling place and passed out algebra tests.  That didn't make me popular.  Of course, all of the great social leaders in history, like Gandhi and Reagan, weren't successful at first.  Fortunately the Loudoun County jail has good internet access.  Otherwise, this never would have been written.  They have a great breakfast here, better than most of the breakfast places in California.  All of the breakfast places in California have "Pain" in the name.  "Pain" is French for "Let's rip off the stupid Americans."

 As always, thank for reading.  For real tax and accounting advice, please visit our main S&K web site at www.skcpas.com.  Until next time, let's do it to them, before they do it to us.