In December 2017, the United States government voted to approve the Tax Cuts and Jobs Act. This bill offers the largest revision to American tax laws in decades. While there has been a bit of controversy over who will benefit from the new tax laws and whether it will succeed at its goal of strengthening the economy, it seems that small, pass-through businesses are optimistic about what this new tax reform will mean for their taxes.
There are four primary changes in the new tax bill that are advantageous for small business owners:
- The new tax law has doubled the standard deduction for individuals. Pass-through filers will see a direct benefit from that since their business profits are claimed on their individual tax returns.
- Tax brackets are being lowered, so many owners will see a reduction in their taxes as they may now fall under a lower tax bracket.
- The bill allows up to a 20% additional deduction for pass-through entities. There will be some exclusions from this option, but many small businesses will qualify for at least a portion of this deduction.
- The new tax reform includes an increase in deductible business equipment expenses, from $500,000 a year to $1,000,000 a year. This will amount to substantial savings for those companies who use expensive equipment, such as bucket trucks.
As a result of these tax breaks, businesses are likely to benefit and grow in the following ways:
- Money saved on taxes each year can be invested and saved to act as a financial cushion during slower business months.
- Lower tax payments mean there will be extra money available for job creation, increase in wages, and better, more frequent, bonuses.
The goal of the Tax Cuts and Jobs Act is to get more money back into the hands of the individuals so America can begin to see economic growth. These tax changes for small business owners are one way the bill attempts to do just that: strengthen the business, strengthen the individual, strengthen the economy.
If you are a small business owner and have questions about how the Tax Cuts and Jobs Act will affect your taxes in 2018, contact us today at Foster Financial CPA.