Business taxes were challenging enough. But now there are new regulations to learn and interpret. On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act, which amended the IRS code.
What Is the Tax Cuts and Jobs Act?
The Tax Cuts and Job Act reduces tax rates for businesses and individuals and gives tax benefits to small businesses in order to encourage jobs. In addition, it has the corporate tax rate falling from 35% to 21%. Thus the law is expected to boost economic growth and see employment rise .06%.
Benefits to Small Businesses
Referred to as “pass through taxes,” tax rates have been reduced, as qualifying business income will have a 20% deductible. About 80% of small businesses file as pass through entities including sole proprietorships, partnerships, LLCs, and S-Corps. This will encourage more people to start their own businesses because it helps small businesses put more money back into their business whether that be infrastructure or expansion.
Another benefit of the new tax law is Section 179, the ability to deduct the total cost of new equipment. In the past, this was done over several years of depreciation. This makes it attractive to companies who have been looking into investing in new technologies. Investing in infrastructure makes companies more efficient, which leads to greater profits, which in turn stimulates the economy.
Not all aspects of the law are expected to benefit small businesses, however. Several well-used deductions were eliminated. Travel expenses and membership fees in professional organizations both ended. In addition, any change to tax law means business owners must relearn the ins and outs of the complicated business taxes process, and possibly requiring the help of a tax professional.
There is still more information to be released by the IRS. Some professionals such as lawyers, doctors, and tax accountants, do not know yet if they will be allowed to take the pass through deduction. The law is complex and hard to understand, and the IRS still needs to write guides on certain parts.
How Does the New Tax Law Affect Business Taxes?
Many small companies are concerned about their business taxes and confused about how the new regulations impact them. The tax laws are based on encouraging economic growth. However, economic growth cannot happen if small businesses are perplexed by how it works. The success of the law depends on businesses understanding how it works and implementing it via new hiring’s or purchases.
New tax laws always come with a learning curve. Balanced Taxes can help you understand the law and make sure you are getting the best tax break possible. Call us today!