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3 Things You Should Know About Small Business: Jan. 2

Stocks in this article: FB

NEW YORK ( TheStreet) -- Happy New Year! What's happening in small business today?

1. So what does the fiscal-cliff tax deal mean for small businesses? The good news is the deal will mean greater certainty with regard to taxes, as it extends or makes permanent a number of increased tax provisions including tax rates on ordinary income, estate tax, dividends and capital gains, the research-and-development tax credit and the alternative minimum tax (AMT), according to Forbes.

On the one hand, the AMT exemption has been raised to $50,600 for singles and $78,750 for married couples. The fix is retroactive for the 2012 tax year, Forbes says.

The biggest expiring, yet unsurprising, tax provision is the payroll tax cut.

In another blow, top rates for ordinary income will rise to 39.6% for singles making more than $400,000 and marrieds making more than $450,000, on top of the 0.9% tax increase on ordinary income over $200,000 ($250,000 married) already set to begin in 2013 thanks to the health bill, the article says.

"The increase in the top rate, the AMT relief provided for 2012 tax year and the hidden tax increases -- all combine to make it possible that many small and medium businesses that weren't eligible for business credits thanks to AMT limitations in 2011 will now potentially be able to take advantage of these dozens of credits. In essence, a backdoor opportunity for small businesses," the article says. "The time is now -- before filing 2012 tax returns -- for business owners to have a sit-down with their accountants and focus on all of these business credits."

2. Tax agreement will allow for steady franchise growth this year. While franchise growth is expected to somewhat slow this year, the International Franchise Association says the passage of H.R. 8, the American Taxpayer Relief Act of 2012, was "critical to ensuring the positive growth forecast for the franchise industry in 2013 and for consumers across America," IFA CEO Steve Caldeira said in a statement.

"While not ideal given it raises taxes on some of our most proven job-creating, small-business owners who file as individuals, bipartisan solutions are necessary for our leaders in Washington to give confidence to America's small-business community. Failure to act could have jeopardized our industry's growth plans and pushed the economy back into a recession."

The IFA strongly supported key tax extenders including:

  • 50% bonus depreciation for qualifying property purchased and placed in service before Jan. 1, 2014;
  • Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
  • The Work Opportunity Tax Credit for lower-skilled workers and the long-term unemployed;
  • Section 179 expensing for capital assets such as machinery in the year of purchase.

The deal is "not a substitute for the long-term fundamental fiscal reform," and that Congress needs to "commit to a long-term plan to address America's excessive spending, particularly entitlement spending and reducing the unsustainable debt that is choking and holding back our economic recovery," Caldeira says. "Any future deal should also include comprehensive tax reform that addresses the complexity of the tax code for both corporations and individuals."

3. Venture M&A and IPO market activity drops in 2012. Despite positive signs in the first half of 2012 for initial public offerings of venture-backed companies in the U.S., both IPOs and mergers and acquisitions fell in the fourth quarter and the full year, according to Dow Jones VentureSource .

In the fourth quarter, 121 exits raised $10.6 billion, a decrease in activity from the 149 exits that raised $12.6 billion a year ago. For the full year, 483 mergers, acquisitions, buyouts, and IPOs raised a total of $51.5 billion, a 19% decrease in deal activity and a 7% drop in the overall amount raised from the 594 exits in 2011.

"At the beginning of 2012, IPO deal activity increased dramatically as companies sought to capitalize on the blockbuster potential surrounding the Facebook (FB) IPO," said Maryam Haque, senior research analyst for Dow Jones VentureSource. "As Facebook's performance underwhelmed investors, enthusiasm appears to have turned to caution in the IPO market. Exits dropped 19% in the fourth quarter compared to last year."

Fifty venture-backed companies raised a record $11.2 billion through public offerings in 2012, the most since 2000 and more than double the amount raised by IPOs in 2011. Business and financial services proved the most active IPO industry in 2012.

However, acquisition activity declined in 2012, ending with the fewest exits since 2009, Dow Jones VentureSource says. The 403 M&A transactions raised $37.4 billion, a 24% drop in M&A activity and a 23% decline in capital from 2011. Health-care companies accounted for six of the top 10 M&As last quarter, even though the health-care industry represented just 15% of this year's M&A activity.

Buyouts of venture-backed companies by private equity firms ended on a more positive note, with 30 companies acquired for $2.9 billion in 2012, a 50% increase in the number of exits from 2011.

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

>To submit a news tip, email: tips@thestreet.com.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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