Understanding the New Tax Cuts and Jobs Act: What Small Business Owners Need to Know
The Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017. This new legislation makes sweeping changes to the tax code, which will impact small business owners in several ways. This blog post will outline the fundamental changes that small business owners need to be aware of. We will also provide tips on taking advantage of the new deductions and credits available under the TCJA.
The new Tax Cuts and Jobs Act (TCJA) will impact small business owners in several ways. The most significant changes include the following:
1. The corporate tax rate is reduced from 35% to 21%. This will be a huge benefit for small businesses structured as corporations.
2. A new 20% deduction for qualified business income from pass-through entities such as sole proprietorships, partnerships, and S corporations. This deduction is available for tax years 2018 through 2025 and is subject to various limitations and restrictions.
3. The standard deduction increased from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for married couples filing jointly. This change will simplify tax filing for many small business owners who do not itemize their deductions.
4. The elimination of the personal exemption. This change will offset the increased standard deduction for many taxpayers, especially those with large families.
5. The repeal of the Alternative Minimum Tax (AMT). This provision had been a thorn in the side of many small business owners who were subject to it.
6. New limits on the deductibility of interest expense. Interest expense is now limited to 30% of a company’s adjusted taxable income. This provision applies to new and existing debt and is effective for tax years 2018 through 2025.
7. A doubling of the estate tax exemption from $5 million to $10 million per person. This change will significantly relieve small business owners concerned about estate taxes.
8. The individual mandate’s repeal under the Affordable Care Act (ACA). This change will impact small business owners who provide health insurance to their employees through the ACA exchanges.
One of the most significant changes under the TCJA is the reduction in the corporate tax rate from 35% to 21%. This change will be beneficial for small businesses that are structured as C corporations.
The corporate tax rate in the United States has been lowered from 35% to 21% under the Tax Cuts and Jobs Act (TCJA). This change is beneficial for small businesses that are structured as C corporations. The reduction in the corporate tax rate will allow small businesses to keep more of their profits and reinvest them into their businesses.
Under the old tax code, small businesses were subject to a higher tax rate than larger businesses. This placed small companies at a disadvantage when competing against larger enterprises. The new 21% corporate tax rate levels the playing field and makes it easier for small businesses to compete.
In addition to the reduction in the corporate tax rate, the TCJA also allows small businesses to deduct up to 20% of their qualified business income. This deduction is available to sole proprietorships, S corporations, and partnerships. The deduction is capped at $315,000 for married couples filing joint returns and $157,500 for single filers.
The corporate tax rate reduction and the deduction for qualified business income will help small businesses grow and create jobs. The changes under the TCJA will make it easier for small businesses to invest in their businesses and expand their operations.
Another critical change is the creation of a new deduction for pass-through businesses. Pass-through businesses include sole proprietorships, partnerships, S corporations, and LLCs. Under the new tax law, these businesses can deduct up to 20% of their qualifying business income.
The new tax law has created a deduction for pass-through businesses, which can deduct up to 20% of their qualifying business income. This is a significant change that will benefit many businesses, allowing them to keep more of their income.
Pass-through businesses include sole proprietorships, partnerships, S corporations, and LLCs. This deduction is a significant benefit for these businesses, allowing them to keep more of their income. This is a significant change that will help many businesses grow and prosper.
The standard deduction has also been doubled under the TCJA. For 2018, the standard deduction is $12,000 for individuals and $24,000 for married couples filing jointly. This change will likely result in fewer small business owners itemizing their deductions.
While the Tax Cuts and Jobs Act (TCJA) has increased the standard deduction, it has also resulted in some changes to itemized deductions. For example, the deduction for state and local taxes (SALT) is now capped at $10,000. This may cause some small business owners to reconsider whether to itemize their deductions.
Another change under the TCJA is that the deduction for home mortgage interest is now limited to loans of up to $750,000. This may impact small business owners who have expensive homes or who are considering taking out a loan to purchase a new property.
Overall, the changes to the standard deduction and itemized deductions may cause some small business owners to rethink their tax strategy. It is important to consult with a tax professional to determine which deduction is best for your individual situation.
The new tax law also repeals the individual mandate of the Affordable Care Act (ACA). This repeal may impact small business owners who offer health insurance to their employees through the ACA exchanges.
The individual mandate’s repeal may impact small business owners who offer health insurance to their employees through the ACA exchanges. The individual mandate was a key component of the ACA that required individuals to have health insurance or pay the penalty. The mandate helped to ensure that healthy people would enroll in health insurance plans, which would help to keep premiums low for everyone.
Without the individual mandate in place, fewer healthy people may enroll in health insurance plans offered through the ACA exchanges. This could lead to higher premiums for those who do enroll, which would burden small businesses that offer health insurance to their employees. Additionally, the loss of the individual mandate may cause some insurers to leave the ACA exchanges altogether, which would further reduce competition and drive up prices.
It still needs to be determined exactly how the repeal of the individual mandate will impact small businesses and their employees. However, business owners need to be aware of the potential changes that could occur as a result of this change in law.
The TCJA contains several other provisions that will impact small businesses, including changes to depreciation rules and limits on interest deductions. Overall, the net effect of these changes will vary depending on each individual business’s situation.
The Tax Cuts and Jobs Act (TCJA) made several changes that will impact small businesses. One change is the new depreciation rules. The other change is the limit on interest deductions.
The new depreciation rules allow small businesses to immediately deduct the cost of certain business assets, such as equipment and furniture, up to $1 million. This deduction is available for assets placed in service after September 27, 2017 and before January 1, 2023. The deduction phases out over the next four years, until it is eliminated entirely in 2027.
The change to the interest deduction limit will impact small businesses that have taken out loans or lines of credit to finance their business operations. Under the new law, businesses can only deduct interest on up to $750,000 of debt. This limit applies to both new and existing loans. The old limit was $1 million.
Read more: 5 Types of Tax Planning Everyone Should Be Aware Of – Startup Tandem
Small business owners should consult with their tax advisors to determine how the new tax law will impact them specifically. There are also a number of opportunities for small businesses to take advantage of the new deductions and credits available under the TCJA.
The new tax law, the Tax Cuts and Jobs Act (TCJA), has a number of provisions that will impact small businesses. The most significant change is the reduction in the corporate tax rate from 35 percent to 21 percent. This will provide a significant boost to small businesses that are structured as C corporations.
There are also a number of new deductions and credits available to small businesses under the TCJA. For example, the new law creates a deduction for Qualified Business Income (QBI) from pass-through entities such as sole proprietorships, partnerships, and S corporations. This deduction is available for tax years 2018 through 2025 and can be worth up to 20 percent of QBI.
Another provision of the TCJA that will benefit small businesses is the expansion of the Section 179 deduction. This deduction allows businesses to immediately deduct the cost of certain qualifying property and equipment purchases up to a maximum amount. The maximum deduction has been increased from $500,000 to $1 million under the new law, and more types of property are now eligible for the deduction.
Finally, the new law created a credit for employers that provide paid family and medical leave. The credit equals 12.5 percent of wages paid to employees on leave, up to a maximum of $4,000 per employee. To be eligible for the credit, businesses must have a written policy in place that provides at least two weeks of paid leave per year for full-time employees.
These are just some changes that small businesses need to be aware of under the new tax law. Consult with your tax advisor to determine how the TCJA will impact your specific business. And take advantage of the opportunities available to help your business grow and succeed.
The Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017, and contained several provisions that will impact small businesses. One of the most significant changes under the TCJA is the reduction in the corporate tax rate from 35% to 21%. This change will be beneficial for small businesses that are structured as C corporations.
Another critical change is the creation of a new deduction for pass-through businesses. Pass-through businesses include sole proprietorships, partnerships, S corporations, and LLCs. Under the new tax law, these businesses can deduct up to 20% of their qualifying business income. The deduction is available to companies with income below $157,500 for single filers and $315,000 for married couples filing jointly.
The standard deduction has also been doubled under the TCJA. For 2018, the standard deduction is $12,000 for individuals and $24,000 for married couples filing jointly. This change will likely result in fewer small business owners itemizing their deductions.
The new tax law also repeals the individual mandate of the Affordable Care Act (ACA). This repeal may impact small business owners who offer health insurance to their employees through the ACA exchanges. The Congressional Budget Office estimates that this repeal will result in 13 million fewer Americans having health insurance by 2027.
In addition to these significant changes, the TCJA contains several other provisions that will impact small businesses, such as changes to depreciation rules and limits on interest deductions. Overall, the net effect of these changes will vary depending on each business’s situation. Small business owners should consult with their tax advisors to determine how the new tax law will impact them.
Read more: 4 Features of Tax Planning that Business Managers Should Know – Startup Tandem
How can Startup Tandem help?
Startup Tandem provides startups, individuals and small businesses owners with tax advice, tax planning and tax filing services. Our team can help you and your business get prepared for tax season, create a tax strategy and plan for the year to minimize your tax liability and get your taxes filed. We help C Corps, S Corps, LLC, sole proprietors, and partnerships. We also help individuals with their tax filing needs.