The tax reform bill, H.R 1, known as the Tax Cuts and Jobs Act which enacted sweeping changes to the Internal Revenue Code, contains numerous changes that will affect businesses large and small. The new tax law is complex; most business owners will look to their accountants and tax professionals for explanations of the changes.
Unlike changes to the individual tax structure, which are temporary and somewhat piecemeal, the changes to the business tax structure are permanent and relatively comprehensive. While small businesses don’t get as hefty a tax break as corporations do, they do get a 20% reduction of taxable business income.
Here are five of the changes found in the new tax law that may apply to small business owners:
- Lowers the corporate income tax rate permanently to 21 percent, starting in 2018.
- Establishes a 20 percent deduction of qualified business income from certain pass-through businesses. Service industries (e.g., health, law, professional services) are generally excluded, except where income is below $315,000 for joint filers and $157,500 for other filers. The pass-through deduction was included as an individual income tax provision, which means that it expires at the end of 2025, along with the other individual income tax reductions.
- Implements a territorial tax system that taxes businesses only on income earned within the U.S.
- Allows full and immediate expensing of short-lived capital investments for five years.
- Increases the section 179 expensing cap from $500,000 to $1 million. Newly qualifying property that can be expensed now includes:
(a) Tangible personal property (e.g., furniture and appliances) used predominantly to furnish lodging or in connection with furnishing lodging.
(b) Improvements to nonresidential real property (e.g., roofs; heating, ventilation, and air-conditioning; fire protection and alarm systems; security systems).
Source: Tax Foundation
Almost all these and the many other changes in the new tax law are complicated and may affect companies differently. Small business owners should consult their tax professional to understand the impact and scope of these changes before making decisions about future investment opportunities.
Charles P Myrick CPA, specializes in accounting and business advisory services for new business start ups and entrepreneurs. If you are a small business owner, give us a call. We invite you to learn more about the small business accounting services that are available: (202) 789-8898.