Small biz taxes: What's in store

Casa de Arboles owner Maggie DiUlio and her alpacas.

Breaking down Obama's tax plan

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(Fortune Small Business) -- With a new administration and an economy that continues to slip, Maggie DiUlio is nervous. DiUlio owns Casa de Arboles, a 30-acre alpaca farm in Monroe, Wash. She and her husband (who helps with the alpaca operation but also works as a veterinarian) had a combined 2008 income of $340,000. DiUlio worries that President Obama will make good on a campaign pledge to raise taxes on couples with incomes above $250,000 ($200,000 for single filers).

DiUlio also worries about business tax hikes. For example, she says she might sell her alpaca farm one day, which would require her to pay capital gains taxes. Currently the federal capital gains rate is 15%, but that too could change.

"I'm apprehensive," she says. "Taxes have a huge impact on the growth, health and future of my business."

But here's some good news for DiUlio. It appears that the new administration and the Democrat-controlled Congress are unlikely to raise taxes, at least in the short term. Doing so would be a disastrous move, given the deep recession and the need for economic stimulus, says tax expert Ken Goldstein, an economist with The Conference Board, a not-for-profit research firm in New York City. And President Obama has publicly supported small business tax breaks.

Unfortunately, the tax picture isn't so pretty at the state level. Every state but Vermont has a balanced-budget requirement - meaning that, unlike the feds, state governments can't engage in deficit spending to goose the economy.

"States are getting slammed, and they will have to make some ugly choices," says James Horney, a researcher at the Center on Budget and Policy Priorities, a Washington, D.C., think tank.

Look for cash-starved states to try to land a big chunk of federal stimulus aid. But they're still bound to fall short of their fiscal requirements and will likely raise taxes and cut spending to make up the difference.

In the longer term, the federal tax picture also looks bleak. Obama has prepared Americans for record trillion-dollar deficits in each of the next two years. But at some point somebody will have to pay for all that spending, and a few years hence, capital gains and other taxes will probably be hiked.

With the future of taxes cloudy, small business owners have all the more reason to take advantage of all tax breaks that are available now.