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Would a Fiscal Cliff Tax Increase Hit Your Small Business?

A tax hike under President Obama's plan to avoid the fiscal cliff would impact only a small percentage of small businesses. Here's why.

After House Speaker John Boehner announced – not once but twice – that “half” of all small business owners would be affected by President Obama’s plan for a tax raise, his spokesman was quick to correct the mistake.

“He meant to say half of small business income would be hit by the President’s plan for higher tax rates,” spokesman Brendan Buck told The Washington Post.

In light of Boehner’s statements in the thick of the fiscal cliff debate, The Post explained what a tax hike would actually entail for small business owners.

Here are the highlights from The Post’s breakdown:

  • Because smaller companies organize themselves differently from corporations, the small businesses themselves don’t pay taxes. Instead, shareholders are taxed at individual rates based on earnings or losses of those small businesses.
  • A tax increase to families making more than $250,000 or individuals making more than $200,000 would affect only 3% of all small businesses paying taxes, according to a report by the Joint Committee on Taxation.
  • Boehner’s corrected statement results from the fact that the 750,000 taxpayers that make up that 3 percent reportedly account for half of the $1 trillion in business income reported in 2011.
  • Using a broader but probably more precise definition of small businesses from the Treasury Department as “people who get at least 25% of their adjusted gross income from small-business income” would amount to only 7.5% of small business owners being affected by the tax hike, The Post reported.

The bottom line? A proposal that includes a tax increase to avoid the "fiscal cliff" would reportedly affect only a relatively limited number of small business owners.

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