Many years have passed since there was last a tax reform – way back in the days of President Reagan, in fact – and the new ‘Tax Cuts and Jobs Bill’ that has recently been passed is bound to have an impact on all taxpayers, from individuals to business owners.
If you’re a business owner, then the following information may be of use and help you to understand what impact the tax reform will have on you:
What impact will tax reform have on me as a business owner?
According to President Trump and his devoted administration, the new tax code was initiated to provide benefits for those individuals within the middle classes, and business owners. If you own a small to medium sized business, the new tax rate of 21% for pass-through businesses such as C-corporations, partnerships and sole proprietorships, will probably have the greatest impact upon you. The term ‘pass-through’ is used to refer to the expenses and revenue generated by organisations that get passed along to the owner’s personal tax returns at individual rates;different to C-corporations that pay a lower rate of taxes.
If your business has a large workforce, then you will find yourself being rewarded by the tax reform, which is designed to encourage other companies to take on more employees. It will depend on how your small business is classified, as to whether it will benefit from the changes to tax codes – whether it be S corporation or C – but it’s a good opportunity to progress with your small business and expand your workforce if possible.
Tax reform for businesses that use a lot of equipment and property:
If the company that you own uses a large amount of equipment and property, then you should take note of the dollar limit for such purchases, which has increased markedly thanks to changes made to Section 179 of the tax code. In the past, a maximum deduction of $510,000 was offered, whereas with the current changes to tax law, qualifying property placed in service in the tax year beginning in 2018, the most that can be deducted has been increased to $1 million, while the phaseout threshold amount has gone up to $2.5 million. With respect to property, rather than the previous 50% bonus depreciation, it is now 100% for properties bought and put into service after the 27th September 2017. Looking forward to 2022, there are reductions planned to the deduction percentage that will eventually see it going down to zero, with exclusions that are applicable to some properties.
How can you find out more about the impact of tax reform?
Knowing exactly how the changes to tax laws will affect you and your small business, is something that you should try to stay up to date with, and one of the best ways of doing this is by hiring a tax professional who will make it their job to keep you informed about all changes to tax codes and what impact they may have.
A tax professional is always one of the most cost-effective ways of keeping track of your taxes, ensuring that you pay them correctly and on time, and preventing you from incurring penalties because you didn’t file by the deadline or failed to recognize the changes to tax laws.