Tax Reform and Your Business
The first few months of the year are typically a great time to gather financial documents and receipts to prepare for the impending tax season and the year ahead. This year, the Tax Cuts and Jobs Act (TCJA) that passed in late December, has business owners caught off guard.
It is no surprise that the Internal Revenue code and the enormous amount of regulation involved in tax law is confusing and intense. At Tax Crisis Institute, it is our goal to help our clients sort through the complicated waters of tax law. If you have been paying attention to the news lately, you have most likely heard details on tax reform.
According to the Joint Committee on Taxation, the overall tax plan will positively impact economic growth over the course of ten years. The committee believes the government will see increased revenue from taxes, even at the proposed lower rates, due to the increased economic activity.
The Tax Foundation ran analysis that showed, “the plan would significantly lower marginal tax rates and the cost of capital, which would lead to a 3.7 percent increase in GDP over the long term and 2.9 percent higher wages.” It also states that “the plan would result in the creation of roughly 925,000 new full-time equivalent jobs, while increasing the after-tax incomes by 4.4 percent in the long run, meaning families would see an after-tax income boost of 4.4 percent by the end of the decade.”
But what does all of this mean? Here is a summary of what experts believe the tax reform bill will mean for businesses!
What We Know About Tax Reform and Your Business
- Pass-through business entities will have access to a new 20 percent reduction.
- This appears to be great news for business owners, but due to some of the limitations, the degree of how much it will help a business will vary greatly. People who are self-employed should be able to access this deduction, along with people involved in partnerships and S corporations.
- This deduction phases out for business owners with incomes greater than $157k (single filers) and $315k (joint filers). This phase out may force some small business owners with higher earnings to move to a C corporation, where tax laws may be more beneficial.
- The corporate tax rate structure will go to one 21 percent bracket.
- This will reduce taxes for several companies. In addition, C corporations with average gross receipts for the last three years that total more than $5 million or more can opt for cash accounting. The ceiling for gross receipts has been moved to $25 million.
- The alternative minimum corporate tax is gone.
- This complicated tax law being gone should make preparing taxes more cut and dry for companies.
- More section 179 business expenses will be deductible in the year they incur.
- This will provide a huge amount of relief for companies that invest significantly in equipment that helps them stay competitive in their field.
What This Means
Most economists believe the tax reform bill will boost the United States economy, but the size and length of the economic boost is unknown. The Joint Committee on Taxation believes the bill will boost the size of the US GDP by 0.8 percentage points over the course of the first 10 years the bill is in place.
Most American taxpayers will see a tax cut from the bill. The Tax Policy Center estimates the average American will see a tax cut of $1,610 in 2018. About 80 percent of people can expect a tax cut in year one of legislation. However, as with all tax issues, different income levels will reap different benefits.
The biggest significance in the tax reform bill is geared towards benefits. The federal corporate tax rate has been cut from 35 percent to 21 percent. This should, in theory, help boost business profits and incentivize businesses to make the United States their home.
The Federal Deficit
The “static” score of the bill, which is the projected debt added when economic growth is not factored in, shows that the federal deficit will increase around $1.5 trillion in the 10 years following the bill’s implementation.
Tax Crisis Institute Is Here To Help
Tax Crisis Institute is your leader and expert in tax relief services. Whether you are struggling to understand the implications of tax reform for your business, or you’ve found yourself in debt to the IRS or state government, we are here to help!
Our team of experts has decades of experience, and will use their knowledge to help you find relief from all of your tax woes. Tax liens, wage levy, and back taxes can feel incredible overwhelming and horrible. Let Tax Crisis Institute help you through your tax season, and help you get back on your feet!
Don’t just take our word for it, read what our satisfied clients have to say about TCI!