Small Business Tax Reform
The 2018 Tax Reform presents a new revolution in the treatment of small business. All changes made to business taxes are pretty straight forward and are not subject to change. Tax reform has major implications for all businesses in general; however as small business owners, we often do not have the appropriate resources or the time to fully comprehend how these changes will ultimately impact us.
- If your business is structured as a corporation, the new tax law is pretty simple. Your corporation will now be taxed at a flat rate of 21%.
- If you are structured as a sole proprietor, you will be taxed at your individual tax rate less a deduction, up to 20% which would in fact lower your rate.
Your deduction is subject to limits and restrictions such as:
- Qualified Business Income (QBI)
- Qualified Property
- Specified Service Trade or Business (service delivery is dependent on individuals i.e. lawyers, consultants, CPAs, Brokers except Engineers or Architects)
- Threshold Amount ($157,500 individual or $315,000) married filing jointly. If your taxable income is below the threshold amount you may take the deduction. If it is over the threshold amount you will be limited and may not qualify for the deduction. Your CPA or Tax Accountant will be able to advise you with this.
The Bottom Line
The bottom line is if you are a sole proprietor you are forced to deal with each of the four areas to determine if you are qualified to take a deduction, as well as calculate the amount of that deduction. If you are a sole proprietor, this may be a great time to re-evaluate your structure to determine whether a corporation, partnership, or Limited Liability Corporate may be a better fit for you going forward. It might make it a lot easier in this new day of tax reform.
Other important facts about the tax bill related to businesses
- No deduction for settlements subject to nondisclosure agreements paid in connection with sexual harassment or sexual abuse
- No deduction and income exclusion for moving expenses
- No more deducting business entertainment expenses:
- No more deducting transportation expenses
- Limits on deductions for employee recognitions and awards
- Modification of limits on employee remuneration