The last few weeks of 2017 brought sweeping changes to the country’s tax laws, leaving no taxpayer unaffected. Though not all reforms included in the new Tax Cuts and Jobs Act take effect immediately, you should consult your trusted CPA and tax adviser about what the new provisions could mean for your small business in Nashville.
Cuts with conditions
The new tax bill particularly hits small firms because it allows “pass-through” entities – which are taxed on the individual owner’s level, rather than the corporate – to deduct up to 20% of their income. But the exact percentage of deductions depends on several things:
- The type of business
- Factors like qualified business income (QBI), qualified property, the specified service trade or business, and threshold amount
- A corresponding formula based on each of these factors
The calculations can become very tricky. Forbes Magazine details several samples, then notes:
“No matter which variation of the formula applies, your deduction may not exceed your taxable income for the year (reduced by net capital gain). If the net amount of your QBI is a loss, you’ll carry it forward as a loss to the next tax year.
“And remember, these deductions from income reduce your taxable income on your individual return. It does not change how you calculate your taxable income inside your business. Business expenses remain deductible.”
These complexities led a CPA and financial advisor to tell FOX Business:
“Tax advisers are going to be even more critical for the small business owner.”
Benefits in the long run
Once you entrust tax preparation to your Nashville CPA, however, you may start seeing how the reforms could help your business in the long run. Aside from the significant 20% break, there are two other rulings that benefit individual entrepreneurs:
- Small business can now write off equipment investments in a single year, instead of across several years.
- Tax cuts for corporations are down from 35% to 20%.
The first not only enables you to obtain additional deductions, it also allows you to use savings from tax breaks to continuously refurbish and replace depreciating equipment. You could also address other related business needs like capital expenditures, development, and hiring.
The second provision might seem to unfairly favor large businesses, but there is a chance it will help you as well. Some say that, in the end, corporations and smaller outfits regularly do business with one another–the former hire the latter to do all sorts of jobs from construction and repairs to filling in employment vacancies. Sooner or later, through investments and income, smaller businesses will be able to share in corporations’ rewards.
How will your company fare under all these changes? With your trusted CPA at your side, you can soon find out.
What Tax Reform Really Means for Small Businesses, FoxBusiness.com
What Tax Reform Means For Small Businesses & Pass-Through Entities, Forbes.com
Small Businesses Get Boost from Tax Changes, WRAL.com
Two Big Reasons the House’s Tax Reform Bill Benefits Small Businesses, WashingtonPost.com