How Recent Federal Tax Law Changes Might Affect Your Business
With the passage of the Tax Cuts and Jobs Act that was made law at the end of 2017, it’s an important time for all businesses and business entity types to review their status and consider potential changes. This is the largest sweeping tax change in decades and affects us all. These changes present great opportunity for business owners. Here are some major changes that will affect you directly.
Some personal tax changes include
- Restructuring of the tax brackets to reduce tax rates as well as increase the amount of income in each bracket. (This means more of your money will be taxed at lower rates)
- The Standard Deduction almost doubled! ($12,000 for individual taxpayers and $24,000 for married filing jointly)
- Personal Exemptions has been removed completely
- Most of the Itemized deductions were cut (Making the standard deduction more likely)
- State and Local Taxes can be a maximum deduction of $10,000
These changes in the tax code present us with an opportunity where being a business owner creates a very favorable tax situation. With the added restrictions on personal deductions and exemptions, being able to take business deductions will help to ease some of the additional tax burden. This makes planning that much more important..
It is also important to learn these new laws because many of you will be setting up an LLC. This stands for Limited Liability Company and it creates a flow through tax structure. That means the income generated by your business will be taxed at your personal rates. For those of you that aren’t there are other Business structures that these new laws also apply.
Now let’s look at the changes to the Business Tax
- The Corporate Tax Rate is reduced to 21% (This rate is used for C-Corporations)
- The Flow Through entities have the potential to deduct up to 20% of their business income to reduce their total taxable income. (There are limitations and potential phase outs, so strategy is important for maximizing this deduction)
- Non-recognition of Like-Kind Exchanges is restricted to real property. (This means only Real Estate Like-Kind exchanges don’t recognize gain)
- Individuals may only deduct up to 80% of their income as a Net Operating Loss from the business with no look back. (In previous years you could reduce income from years prior with a Net Operating Loss, now it can only be carried forward)
- Depreciating Automobiles has an annual ceiling: Year 1 $10,000. Year 2 $16,000. Year 3 $9,600. Year 4 and on $5,760
- Entertainment expenses are no longer deductible.
- There’s no more employee travel Fringe benefits.
While opportunity presents itself to every new Business Owner, you need to attack these ventures with a strong plan.
Our tax professional partners at Eco-Tax CPA pride themselves on their expertise helping new business owners implement a tax plan to maintain full control of their cash flow.
You can request a Free Tax Consultation with them today, so you can be confident you are on the right path in responding to the new tax.
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Simply complete this form and one of our business advisors will contact you to get your questions answered.