President Obama's 2013 Budget Proposes Enhanced Tax Incentives

President Obama's 2013 Budget Proposal outlines a few major, but positive, changes for small to medium sized business owners, including: changes to the R&D Tax Credit, adding a new job creation incentive, increasing the Domestic Production Deduction (DPD) as well as introducing the "Buffet Rule" as an alternative to the Alternative Minimum Tax (AMT).

R&D Tax Credit

The R&D Tax Credit, also known as the Research Tax Credit, provides an incentive to companies and their owners for performing activities called Qualifying Research Expenditures (QREs). (For a discussion of what constitutes a QRE, read this article). The President is proposing to make the credit permanent, thus eliminating the uncertainty companies face when making a commitment to perform ongoing research and development.

The President has also requested that the credit be simplified, and that the rate of the alternative simplified credit (ASC) be increased from 14 to 17 percent effective January 1, 2012.

Tax Credit for New Jobs and Wage Increases
 

A tax credit for new job creation and wage increases is proposed for qualified employers. The credit will be available for just one year beginning January 1, 2012.

The credit would be equal to 10 percent of the increase in eligible wages for 2012 over the employer's wages in 2011. The credit tops out at $500,000 because the maximum amount of the increase in eligible wages is $5 million per employer.

Domestic Production Deduction
 

Another aspect of the President's overall plan is to increase US manufacturing. As such, he is targeting the domestic production incentive, also known as the Domestic Production Deduction (DPD), which provides an incentive to companies that manufacture here in the United States.

The Administration is proposing to reform the current deduction for domestic production by more narrowly focusing it on manufacturing activities - for example, removing coverage of oil production. The savings derived from eliminating some previously covered activities would be used to expand the deduction for manufacturers, as well as increase the DPD from its current level of 9 percent to 18 percent for advanced manufacturing technologies.

The "Buffet Rule"

The budget characterizes the "Buffet Rule" as: "No household making over $1 million annually should pay a smaller share of its income in taxes than middle class families pay." Its name is derived from Warren Buffet's observation that his effective tax rate is lower than his secretary's.
 

The budget proposes that those making more than $1 million should pay at least 30% of their income in tax. The budget's introduction says that "[t]he Administration will work to ensure that this rule is implemented in a way that is equitable, including not disadvantaging individuals who make large charitable contributions", but no specifics have been provided as of yet.

The president is proposing that this "Buffet Rule" replace the current AMT. The elimination of the AMT could provide an opportunity for many taxpayers to take advantage of tax incentives previously unavailable to them, including the R&D Tax Credit.

Summary

Our hope is that these incentives remain part of the budget when passed. From an R&D Tax Credit perspective, our clients will be able to add staff and commit other resources to research and development activities with the knowledge that the credit is now a permanent fixture in the tax code.
 

The "Buffet Rule" could potentially open up the credit to tens of thousands of taxpayers of small to medium sized businesses. As General Tax Credits are unable to reduce AMT, by replacing the AMT with the "Buffet Rule", Small Business owners will now be able to take advantage of many more tax incentives, including the R&D Tax Credit.
 

The proposed increase in the DPD will help increase US manufacturing and add new employees needed to support the increased manufacturing.

Lastly, the proposed tax credit for new jobs and wage increases will assist our Hiring & Location Incentive clients to add new staff and help increase employment for the country while bringing down the unemployment rate.

It's All about Change

From Planning to Success

By John Lankford

Strategic planning may be the toughest hurdle to conquer in the business world. Let's face it, the day-to-day operations can be overwhelming enough and often really critical parts of the planning process are skipped over because of time constraints. Then, there is the sobering realty that most companies lack the mindset, the assets, and/or the appetite to devote to strategic planning. Since winning the #1 award as the Associate Business Coach of the Year, I am often asked, "What do successful businesses have in common?" The answer starts with a commitment to evaluation.

Changing your results is predicated on strategic planning, operational planning, and performance management planning. Strategic planning is the roadmap to the future. It means revisiting your vision, mission, and values; in other words, your "rules of the game." Strategic planning is about where you're headed and what you will accomplish when you arrive.

The purpose of planning is not to produce results, but to align your executive team and set the long-term course. This dialogue is critical to help these senior leaders adapt, focus, and commit.

 1. Analyze results from the past three years

• Revisit your Vision/Mission Statement.
• What market changes have occurred in the last 2-3 years?
• Unique Selling Proposition - what differentiates you in the marketplace?
• Assess your internal systems.
• Complete a detailed "SWOT" assessment.

2. Consider alternatives to current problems

• Awareness: What part of management thinking has contributed to current problems?
• Analysis:  What new thinking must exist to define a new direction?
• Discuss: What are alternative scenarios for key variables?

3. Mapping the new direction

• What does the market analysis project for the next 3-5 years?
• Does your current business model require revision?
• How does your company's USP relate to the marketplace of the future?

4. Benchmarking - a new type of leadership

• Identify the top two or three companies (not in your industry) that are "best in class" and visit them to learn from their success.
• The quality of your benchmarking trip will be in direct proportion to the amount of time spent planning the visit.
• Do you have the right members on your management team?   

The operational plan is "how" you are going to implement the strategic plan. Under normal circumstances, the operational plan should be completed during the fourth quarter. Determining a matching budget and key performance indicators are also obligatory segments of a well-designed plan.

Designing the Operational Plan

1. Identify the forces working for and against your new thinking
2. Test your thinking against the workings of effective strategies
   • Know your competition
   • Have contingencies
   • Match competitive situations
   • Be consistent
   • Be realistic
   • Leverage resources
3. Build motivation                                 
4. Concentrate full resources                  
5. Maintain total communication
6. Conserve scarce resources
7. Match company values
8. Utilize all information and intelligence
9. Combine all strategic components
10. Identify who is responsible for which elements of the plan
11. Analyze operations, key performance indicators, budgets, and department/divisional action plans
12. Develop an implementation timeline
13. Design and execute a company-wide communication plan

Once you've purposefully mapped out the next 3-5 years and have designed an operational plan that articulates HOW you are going to implement the strategic plan, teams and individuals must be made to understand their roles. Most organizations try to use their performance management system. Unfortunately, in almost every organization of which I've been a part, this is where the plan falls short. Leaders at all levels fundamentally dislike their organizational performance management system for three reasons:

1. The system is too complicated
2. Leaders do not hold leaders accountable for using the system effectively
3. Most leaders are not very effective at providing consistent and valuable feedback

But all the planning in the world will go down the drain if no one can state the top three priorities they must accomplish every day and what the company's top three priorities are for the year. 

And finally, a reality check: The likelihood a company will achieve its strategic plan is in its review of the operational budget to determine whether the required funds for success are allocated.

• A business coach, to help design and facilitate offsite planning retreats
• A commitment, by the CEO, to the planning process
• The undisputed participation of management
• A well-designed and implemented communication plan for the entire organization
• A performance management system that holds leaders accountable
• An effective one page organizational scorecard

About the Author

John Lankford is Master Business Advisor of Premier Development Solutions. He can be reached at John@PremierDevelopmentSolutions.com or (734) 454-5667.