5 Ways This Year's Business Tax Cuts Will Impact Your Company
New Tax Reform Will Impact How Much You Owe This Year
Congress approved tax cuts and the Jobs Act with a goal of helping businesses and creating jobs. How much you’ll benefit from these tax cuts depends on how your company is organized.
Learn more about new tax reform and how it can impact your business and your bottom line.
Pass-Through Business Rate Deduction
Business that are not incorporated as corporations are considered a pass-through entity. Any income generated by this type of business may be passed through to the business owner’s tax return. Before the 2017 Tax Act, this income was taxed at the same rate as all other income. Moving forward until reform expires on December 31, 2025, qualifying taxpayers can claim a 20 percent deduction on pass-through income.
While there isn’t a reduction of the tax rate, business owners are now paying tax on only 80 percent of their business income thanks to the pass-through deduction.
This new tax cut applies to:
- S corporations
- Sole proprietorships
- Limited liability companies
- Partnerships (LLCs and LLPs)
If your business is categorized as one of the above, you could be paying less taxes this year than last.
You Can Expense 100% of Business Assets
The 2017 Tax Act allows full expensing for qualified property placed in service after September 27,2017. That includes equipment, computers, office space and more. In the past, businesses could only deduct 50 percent of the cost of the purchase immediately, depreciating the rest of the expense over the life of the purchase.
Another new tax reform allows 100 percent expensing of used equipment, which previously did not qualify for any expensing.
No More Entertainment Expensing
The 2017 Tax Act eliminates deducting expenses related to entertainment, amusement or recreation. Furthermore, meal offered to employees out of convenience to the employer is now limited to 50 percent. In the past, taxpayers were allowed to deduct 50 percent of business-related meals and entertainment expenses and a 100 percent deduction on meals offered to employees as a convenience to the employer.
Reduced Corporate Tax Rate
The 2017 Tax Act permanently reduced the corporate tax rate from 35 percent to a flat 21 percent for tax years starting December 31, 2017. The belief is that corporations will pay less tax and therefore have more money to invest back into their businesses, including hiring and salaries.
Net Operating Losses
New tax reform limits the net operating loss deduction to 80 percent of taxable income. It also ends carrybacks and allows unused losses to be carried on indefinitely.
This tax reform affects unprofitable businesses, those where deductible expenses exceed revenue.
Lower taxes mean more money to invest into your home improvement business. You could use that extra dough on things to help you take on more projects like better equipment, new work vehicles, new employees and more leads!