October 19, 2018
Changes to tax legislation mean that small businesses the world over are getting a break on their taxes, and the legislation is one of the most significant tax overhauls passed in decades. It’s responsible for providing pass-through businesses and corporate entities with lower tax rates.
Here are some of the biggest changes to small business taxes:
Deductions for pass-throughs and corporations:
A pass-through business is defined as being a small business that is structured as an S-Corporation, limited liability company, sole proprietorship or partnership, and they make up about 95% of U.S. businesses. The new bill that has been passed gives a 20% deduction for these businesses, with the only limitation being upon service-based businesses such as law and accounting firms who make more than $315,000 per year.
There are also deductions for C-Corporations, with the new legislation lowering the tax rate from 35 to 21%.
First year bonus depreciation:
This deduction is increasing from 50 to 100%, and enables businesses making eligible equipment and property purchases able to deduct the full amount of the purchase, rather than writing off a portion of the expense every year. This should then give businesses more money to work with up front, giving them an incentive to invest it back into the business or use it to hire employees.
Net operating loss changes:
NOL is no longer permitted to be carried back for two years and can now be applied for an indefinite amount of time. Net operating losses can happen when a business’s tax deductions are larger than its’ taxable income, and it functions as a form of tax relief for businesses, enabling owners to apply a NOL to future tax payments.
The changes to this have eliminated the ability for businesses to restructure taxes that were completed historically and extends net operating losses life span indefinitely. This can only be applied to 80% of taxable income.
Elimination of transportation fringe benefits:
These may be minor changes, but are significant nonetheless. Transportation fringe benefits and entertainment expense deductions, which both take the form of tax-free employee commuter plans and reduced-rate entertainment plans, can still be given by employers, but they can no longer be written off as business expenses.
For more detailed advice and guidance about changes to the tax law for you and your small business, talk to your preferred tax professional and make sure that you are compliant with every new law.