| On or about January 1, 2011, federal, state and | | | | also states that business profits will be taxed at |
| local tax rates are scheduled to rise quite sharply. | | | | the higher personal income tax rates. |
| Most of the legislation passed this year in the | | | | So what can you do today! |
| United States Congress will start taking affect | | | | Increase 2010 Services and Revenues – |
| next year. Several new taxes and tax increases | | | | Engineering companies may choose to increase |
| will be the result of some of that legislation. | | | | their billings this year in order to avoid the higher |
| Although most States have significantly reduced | | | | taxes next year. Push to get more contract work |
| their budgets to account for the projected loss of | | | | done this year, and then push to get paid on that |
| revenues, States have passed legislation that will | | | | work before the end of the year. Although your |
| also increase taxes next year. This will affect | | | | revenues will increase more than expected this |
| your company and now is the time to start | | | | year, next year you may show lower revenues |
| preparing. | | | | than expected. This particular move is expected |
| Most engineering contracts are written so that | | | | across the broad spectrum of American |
| invoices are sent out to clients periodically. In | | | | businesses, which is why many economists are |
| general, engineering firms are taxed on the profits | | | | expecting a decline in American production next |
| that are made after the expenses are subtracted | | | | year, and a decline in the stock market. In |
| from the payments. It is common practice that | | | | addition, you may want to make purchases this |
| engineering firms operate their businesses with | | | | year while you still make the tax deduction. |
| about 10% profits. Any significant changes in the | | | | Increase 2011 Engineering Fees – The other |
| tax structure can have major impact to the | | | | option is to increase your fees on contracts that |
| company's ability to produce a profit. Not taking | | | | will take effect next year. Typically, larger |
| into account these new taxes next year can | | | | engineering firms operate on very low profit |
| drastically reduce your bottom line. | | | | margins usually around 8% to 12%. Increases in |
| According to the Wall Street Journal article by | | | | taxes eat away at that bottom line. If you are |
| Arthur Laffer (June 6, 2010), the major concern is | | | | able to maintain your normal workload, increasing |
| the expiration of President George W. Bush's | | | | your fees a few percentage points can minimize |
| taxcuts. "The highest federal personal income tax | | | | any tax discomforts on the bottom-line. But |
| rate will go to 39.6% from 35%, the highest | | | | increasing your fees may have a negative impact; |
| federal dividend tax rate pops up to 39.6% from | | | | decreasing contracts. Lower profit margins can |
| 15%, the capital gains tax rate to 20% from | | | | be absolutely devastating to a company. Again |
| 15%, and the estate tax rate to 55% from zero. | | | | economists are expecting as a whole that we will |
| Lots and lots of other changes will also occur as a | | | | see inflation next year due to increased taxes and |
| result of the sunset provision in the Bush tax | | | | lower production rates. |
| cuts." | | | | Recommendations – Start now updating your |
| According to World Net Daily article by Herman | | | | Business Plan by making adjustments to your |
| Kain (July 12, 2010), Small businesses (Subchapter | | | | Budgets. Meet with your tax advisor now to see |
| S corporations) will no longer be able to expense | | | | how 2011 tax codes will affect your business; run |
| equipment purchases up to $250,000. "The new | | | | different scenarios and come up with a game plan. |
| limit will be $25,000 which is equivalent to a tax | | | | What additional contract services can your firm |
| increase." So if you are planning on buying new | | | | perform this year, and what adjustments in your |
| equipment early next year, it may be a better | | | | fees maybe needed in order to compensate for |
| idea to make the purchase this year. The article | | | | those addition taxes in 2011? |