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Manager Shirley Liese, left, and owner Mike Denby, back right, serve customers at JR's Pizzeria in Flying Hills Village. Denby says he's unsure what, precisely, the pending tax increase will mean for his business, but that it could create higher prices for customers, cutbacks for staff, or both.
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When National Taxpayer Advocate Nina E. Olsen issued a report Wednesday calling the U.S. tax code enemy No. 1 for the nation's taxpayers, it was a sentiment not lost on Mike Denby.
Denby, owner of JR's Pizzeria in Flying Hills Village, said he'd be happy to discuss how the American Taxpayer Relief Act of 2012 impacts his small business.
But he's not sure he fully understands it.
All he does know, he said, is that he won't be able to file his tax return earlier than Jan. 30, and possibly not until March, because the tax act didn't become law until Jan. 2, and that the act increases his tax burden in 2013.
As a result, the IRS announced this week that it was delaying the beginning of tax season from the normal Jan. 22 start date for most taxpayers until Jan. 30 to print new forms and update software.
"Whatever happens I will have to raise my prices to compensate for it, absolutely," Denby said. "If not that, (then) I may have to reduce hours or eliminate one or two positions depending upon how bad it is.
"When you're a small businessman you have to shoulder the load yourself."
James Restrepo, who opened Wyomissing Fitness and Training on Woodland Road in September 2011, said that when he was listening to the debate over the tax act in December he was less concerned about himself than his current and prospective clients.
How he reacts to the changes in the new tax act depend on how much they impact his bottom line.
"I was more concerned that if we go over the 'fiscal cliff' people would start looking at where they're going to cut back," Restrepo said. " 'Am I going to stop eating out? Am I going to cut the gym membership or cut out a personal trainer?'
"I think all small business owners - retail, food - were all thinking that."
We didn't go off the fiscal cliff, but the taxpayer relief act failed to extend the 2 percent cut in payroll taxes, which means every paycheck will be 2 percent smaller beginning with the year's first paycheck; many have already felt the deduction as their first 2013 checks came this week.
"That was not seen as the best benefit when it was around because it took from Social Security and didn't help the small businessman because he still had to pay the tax," said Barry D. Groebel, a tax partner at Herbein & Co. Inc., Spring Township.
Groebel said small manufacturing businesses will benefit from a research-and-development tax cut, which had been cut for 2012 but was reinstated and is retroactive to last year.
The tax act also raised the first-year deduction for new equipment from $139,000 to $500,000, he said.
"Those are big benefits to small business and they'll be in effect for 2013, too," Groebel said.
Small-business owners who might take a big hit are those who are making more than $400,000 and draw a paycheck from their business.
They could end up paying the highest income tax rate, which went from 35 percent to 39.6 percent, plus a 0.9 percent Medicare tax on all income and the 2 percent Social Security payroll tax increase, meaning that wealthier small-business owners could be looking at a 7.8 percent tax hike.
"A small business, where after expenses the owner is reporting $100,000 income, won't be effected by this," Groebel said.
That's not to say the tax act isn't impacting lower-income individuals.
"We had a seminar and people conducting it talked to a couple of our young staff accountants who were still living at home with their parents," Groebel said. "They said that the $1,000 or so they will miss from their checks is going to force them to make some budget decisions.
"It's all relative. People are saying it's a smaller amount, but it means more to me because I make less."
Contact Dan Kelly: 610-371-5040 or dkelly@readingeagle.com.
