The holidays are almost here. But before you break out the egg nog you may need to make a few more financial moves before year end. And it’s all because of a few big things that will likely happen this week that will affect your business including the first interest rate hike in nearly a decade…..
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A Rise in Interest Rates = Higher Borrowing Costs
After months of deliberations many economists are expecting the Federal Reserve to increase interest rates on Wednesday for the first time since 2008. The boost is expected to be about a quarter of a percentage point and future increases, if any, would likely be gradual. But the effect on the economy and our businesses could be substantial. The cost of debt will of course go up so borrowing will be more expensive. Of greater concern to many will be the impact that interest rate increases have on our Federal deficit – already enormous (more on that shortly) – where interest already accounts for about 6% of our annual budget. After so many years of easy money with rates at near zero, this week marks a shift and business owners should be planning on operating in an environment of higher costs as a result.
Huge Tax Breaks In the Pipeline?
Congress plans to adjourn this week, but before they do they will need to come up with a spending bill for the rest of the next fiscal year and a big part of that discussion are “tax extenders.” These are the 50 or so tax breaks, credits and deductions that expired back in 2014, were extended for 2015 and are now set to expire at the end of this year, unless extended again. Included are a few significant items for small businesses, most notably the ability to accelerate depreciation for capital purchases that we made during the year. For many, this could mean a deduction of up to $500,000 – a significant amount for a typical small business. Credits for research and development expenses are also up for extension. Many Republicans (and some Democrats) are lobbying for a delay in the Obamacare “Cadillac Tax” which affects higher cost healthcare plans in 2018. There is a movement to make many of these deductions and credits permanent which would reduce future uncertainty and allow businesses to better plan their expenditures throughout the year. Smart business owners are keeping a close eye on these pending developments. Passage of these items could have an enormous effect on your 2015 tax return.
Increase Spending Means Increased…?
The current $1.1 trillion spending bill includes increases for many parts of the government including Veterans Affairs, Housing and Urban Development, the Environmental Protection Agency and the Departments of Justice and Defense. On the positive side, many small businesses that perform services for these agencies will likely see their contracts renewed or find themselves benefitting from even more opportunities next year as a result of these increased budgets. However, an increase in spending, coupled with the tax breaks mentioned above, will almost certainly mean that the government will need to borrow more money. Our deficits are currently running near half a billion a year and our national debt is approaching $19 trillion. For example, a tax extenders deal could, according to some, add another $4 trillion to our national debt over the next twenty years. In addition, the Congressional Budget Office projects further increases to these amounts as social security and other government obligations increase and there is currently no long term plan for reducing these liabilities. Business owners are concerned as to what effect these enormous debts will have on our country’s ability to raise funds in an emergency and how this will affect both government spending and their taxes in the long term. Will this impact your business in 2016? Probably not. But in the years to come…yes.
Disney’s (NYSE:DIS) Star Wars - The Force Awakens opens this coming weekend. For fans of the series, it’s awesome news. Expectations are high. Some think it could be the biggest opening weekend in movie history. Regardless, the success of the Star Wars franchise will have an indirect impact on many small businesses who service the industry – the manufacturers (and their suppliers) of toys and apparel, the tech companies that create games based on the franchise, the movie theatres and the businesses that support them and even university professors that are apparently given sums of money to fund ridiculous research projects like this one. Not in the movie business? Escaping to a long time ago and a galaxy far, far away – if at least for only a few hours, is probably the best therapy for any business owner.
The year is almost over. But don’t kick back just yet until you’ve determined how this week’s events will impact your company in 2016.