20 Jan What the New Tax Plan Means for Small Businesses
Tax planning for small business owners just became more difficult with the passage of an expansive overhaul of the federal tax system near the end of 2017. On the plus side, several major provisions of the bill, known as the Tax Cuts and Jobs Act, may help small businesses save money. That’s if they have the time and expertise to hunt for every last deduction. As the scope of tax planning for small business owners comes closer, it’s important for them to understand how to benefit from these new laws.
Important Tax Changes for Small Businesses
The changes that a business owner will see when they file their income tax returns in 2019 depend on how their organization is incorporated.
Pass-through businesses stand to benefit considerably under the new tax code. This will allow them to claim a 20 percent deduction on income through 2025. Pass-through entities include those registered as sole proprietors, partnerships, limited liability corporations, and S corporations. Under the last version of the federal tax code, income from these types of businesses was taxed as if it were personal income, often at a much higher rate.
Changes to IRS Section 179 deductions for business equipment purchases may also benefit small firms. Starting in 2018, the limit on this deduction is now up to $1 million. This could make it easier to budget for capital expenses like manufacturing equipment or vehicles. Additionally, allowances for depreciation of company-owned vehicles are now higher. In just the first year of ownership, businesses can claim up to $10,000 in write-offs for depreciation. In comparison to the previous first-year cap of up to a $3,160 claim.
There are several other new or revised tax credits and deductions that businesses can now situationally claim. These include larger credits for hiring workers from population groups considered disadvantaged. For example, veterans or those enrolled in public welfare programs (the Work Opportunity Tax Credit). There are even certain provisions that stand to benefit specific industries like citrus growers, film and television production, and craft breweries.
How to Respond to the New Tax Rules
The Tax Cuts and Jobs Act has been called the most wide-ranging revision of the U.S. tax code in decades. This means a lot of research on the part of small business owners, so they can be sure they are taking full advantage of the new tax rules.
The new tax rates for most forms of business income represent some of the lowest-hanging fruit in the new law. Still, business owners should verify exactly how they are incorporated and crosscheck that against the new tax provisions. This should provide a starting point to reap savings thanks to the new rules.
Claiming more specific credits, deductions, or exemptions often requires extra work. This could lead to additional expenses, whether it’s hiring a tax professional or purchasing expensive business software.
Additionally, there is plenty of uncertainty left in the new tax laws. Which could lead to higher than expected tax bills for some businesses. It can also mean more spending related to new deductions or credits that are being phased out. A business tax debt loan from QuickBridge is a great solution to these problems. Our business financing affords small businesses the flexibility they need to deal with any new tax issues that may arise.
We all know that tax planning for small business owners is a complicated and time-consuming process. However, given the recent changes to the tax code, it could turn out to be a valuable investment. Contact QuickBridge to learn more about how we can help jumpstart your tax strategy and help get you on a faster track for growth.