Posted: March 01, 2013
Colorado innovators weigh impact of contested tax
Tough hike for medical device makersBy Debra Melani
Although both Colorado Sens. Mark Udall and Michael Bennet declined interviews, they said through their spokesmen that they were open to reevaluating the tax as part of a broader tax-reform package. Bennet spokesman Adam Bozzi said in an email: “The process should ensure that it is administered fairly for both large and small businesses and doesn’t hurt medical-device companies’ ability to hire and retain workers or dampen investment in startup companies.”
Tax or no tax, Smith has faith in the industry’s future. “The medical-device industry is a very resilient industry. I think that medical innovation comes about because smart people are trying to create a better patient outcome, and those smart people are going to continue to try to do that.”
Of 330 medical-device and diagnostics companies operating in a nine-county region in Colorado in 2012, nearly 68 percent employed fewer than 10 workers, while 2.4 percent employed 250 or more.
Metro Denver Economic Development Corp.
In 2006, the medical-device industry paid corporate income taxes of $3.1 billion on taxable income of $13.7 billion. The medical-device tax would add approximately $3 billion annually to the taxes paid by medical-device firms — a 100 percent increase.
The National Center for Policy Analysis
FISCAL CLIFF FALLOUT
No working American survived the Jan. 1 fiscal-cliff decisions by Congress unscathed, with those in higher income brackets taking a particularly powerful punch. Here’s a look at some of the changes in store at the tax table this year, along with brief commentary by accountant Lauren Long, who teaches in the Colorado State University College of Business, and accountant Fran Coet, founder of Coet and Coet in Westminster. Coet warned business owners that all of these last-minute tax changes are resulting in significant filing delays.
• Individuals and couples earning more than $400,000 and $450,000 respectively will see their rates increase 4.6 percent to a maximum rate of 39.6 percent.
• A new 3.8 percent Medicare tax on passive income, such as capital gains and dividends, will affect individuals with annual incomes above $400,000 and couples who earn more than $450,000.
• A new 0.9 percent Medicare tax on earned income, such as wages and self-employment income, will apply to individuals with earned income greater than $200,000 and couples with combined earned income of more than $250,000.
• Rates for dividends and capital gains will rise from 15 percent to 20 percent for individuals making more than $400,000 ($450,000 for joint returns).
• Higher-income taxpayers will also lose deduction options, as the Pease itemized-deduction phase-out and the personal-exemption phase-out were reinstated. The thresholds are $300,000 for married filing jointly, $275,000 for head of household, and $250,000 for single.
Long: “If you are in a higher-income bracket, it’s a big chunk of money.” Long advises business clients to consider shifting money and restructuring investments (i.e. buying municipal bonds) for cushion.
Coet: “You can see what that’s going to do to their budget.” Coet ran the math on a higher-income couple, finding that the changes could cost them nearly $17,000 more in taxes. And these are the people most likely to be business owners. “That could be a receptionist that isn’t going to get hired.”
All employees will see their paychecks reduced by 2 percent because the Social Security payroll tax deduction expired and was not renewed. (An income earner of $60,000 will take home $1,200 less this year, or minus $100 a month.)
Long: “I’m hearing from many small businesses that many of their employees are living paycheck to paycheck, so that’s kind of rough. Now they are going to ask for raises.”
Coet: “I think it’s going to have a large effect. If someone went out in December and bought a Toyota Corolla and has a $350 a month car payment, come the Feb. 1 car payment, they are going to come up short. People have commitments, and all of the sudden their paycheck shrank.”
The current $5.12 million exemption level for estate tax will remain in place, rather than be reduced to $1 million, and is now indexed for inflation, so the exemption for 2013 will be $5.25 million.
Long: “We had a lot of taxpayers giving away millions of dollars in assets, assuming the tax was going to change. I think a lot of people regret those gifts now. But there could be benefits of getting those assets out of your estate.”
Coet: “So small business owners looking at retirement or doing their estate planning will have stability for, I want to say, the foreseeable future.”
Increased allowable expensing of $250,000 will be extended for 2012 and 2013, and the increased 50 percent bonus depreciation rules for investment in new property and equipment will remain in place for possessions placed in service before the end of 2013.
Coet: “So if I buy a pickup truck to work in the field, I can take that purchase as equipment and expense the entire thing. They also left in qualified real-estate improvements, so I have a client who couldn’t afford a needed expansion for her beauty salon. Now if she wants to, she can expense the entire quarter-million-dollar improvement.”