Tax reform legislation passed in late 2017 is having an impact on small businesses beginning with the 2018 tax cycle. How can small-business owners make the most out of the new tax laws and what impact will it have on their business finances?
As seen in the recent post, Entrepreneurial Dilemma: Do I Have Enough Money to Start My Own Business?, new entrepreneurs face complex small business funding challenges. With new guidelines and deductions, how will tax reform affect small businesses in 2019?
What the New Law Does
The Tax Cuts and Jobs Act was passed in December 2017. It includes changes that have affected nearly every business. The new law creates new tax brackets and deductions that can affect your tax liability.
Understanding the impact of the tax reform on your small business requires some fundamental comprehension of the law.
What Tax Reform Means for Small Businesses
Perhaps the most significant changes for small businesses are to the tax rate and income deductions.
First, the tiered tax table was replaced by a flat rate of 21 percent for all corporations on the taxable income collected after December 31, 2017. Second,the corporate alternative minimum tax (ATM) was repealed as of January 1, 2018. Third, the Credit for Prior Year Minimum Tax Liabiity of Corporations allows businesses to take a refundable credit to offset tax liability from tax years after 2017 and before 2022.
Other Benefits For Small Businesses
The new law increases the bonus depreciation for qualified properties purchased and used after September 22, 2017, and before January 1, 2023. The new depreciation percentage increases to 100 percent, up from 50 percent.
Net operating loss deductions have also changed, limiting the deduction to 80 percent of taxable income. Most businesses will no longer be able to apply net operating losses to the previous two tax years but may carry forward net operating losses indefinitely rather than 20 years under previous guidelines.
Other business-related exclusions and deductions include:
- A limit on business interest expenses for businesses with $25 million or more in annual gross receipts
- Qualified moving expense reimbursements included in employee wages
- Employee and employer deductions of employee achievement awards that are tangible personal property
- Eliminated deductions for entertainment, amusement, and recreation
- Employer credits for paid family and medical leave
Support for Tax Law Impacts
The dizzying array of new provisions in the tax laws requires businesses to have support in understanding the impact on their companies. At Benetrends, we help companies with small business funding solutions and support services, including retirement plan management, payroll management, and business insurance.
To learn more about how Benetrends can support your growing small business, check out our Resource Center.