In mid-December, House Republicans passed a bill that is going to change the economic landscape of the United States.
From identifying the right tax breaks for your business to knowing what kinds of deductions you’ll be able to make in 2018, we have put together some ways this new bill may benefit your small business.
Change in Taxes
First of all, one of the ways in which businesses, both small and large, will benefit from the House bill is the cutting of the corporate rate. According to the new tax regulations, corporate tax rates will be lowered significantly – down to 21 percent from the whopping 35 percent that businesses had to pay in 2017.
However, under the Senate proposal, the 21 percent rate would not take effect until 2019, which means this delay would reduce the cost of the measure in the first 10 years.
Additionally, taxes will be lower on pass-through business incomes. As most US businesses are set up as pass-throughs instead of corporations, they will benefit. This means that the profits are passed through to the owners, shareholders, and partners, who pay tax on them on their personal returns under ordinary income tax rates.
This is a great deal because both of the House and Senate bills lower taxes on the business portion of a filer’s pass-through income. The House bill drops the top income tax rate from 39.6 percent to 37 percent, while allowing most pass-through businesses to deduct 20 percent of their income, tax free.
The Senate bill lowers taxes on filers in pass-throughs by letting them deduct 23 percent of their income, up from 17.4 percent originally. This is a significant change that can greatly benefit any pass-through business owner.
If your small business isn’t a pass-through, then there’s no need to worry. According to this article published by CNBC, there are some excellent reasons and easy ways to become a pass-through business. You’ll be able to decide if it’s the right fit for your business and if you’ll get a discount on taxes that will make it worth switching.
More Governmental Oversight of Tax Breaks
Another change is that there’s going to be more scrutiny when it comes to the ethical dealings of businesses, whatever size they may be. If businesses are using the pass-through tax breaks the right way, there shouldn’t be any problems.
Essentially, the bill will prevent abuse of a pass-through tax break: if the owner or partner in a pass-through also draws a salary from the business, that money would be subject to ordinary income tax rates.
There are many ways in which small businesses will be able to benefit from the House’s tax reform bill. When you’re doing your financial planning for next year, with the assistance of an accountant or tax expert, you can find out what benefits will serve you and your small business best. If you have any questions, don’t hesitate to contact a member of the Currency Capital team right here for more information.