Those in favor of the new tax law argued that it would boost small businesses by giving them much-needed breaks on taxation. However, since the law has been passed, the idea that it would be truly helpful for small businesses has been up for debate. Although this reform certainly provides some benefits for smaller businesses, not all businesses will enjoy the same advantages under the new law.
What Does Tax Reform Do for Small Businesses?
One of the main changes for small businesses has to do with the way pass-through income is taxed. This new tax law allows certain small businesses to deduct as much as 20 percent of their qualifying income on their tax returns. However, not all businesses will meet the requirements for this deduction, and the actual amount that is deductible may vary based on several factors.
Another positive change for small businesses is the expansion of the Section 179 deduction. While this deduction once applied only to machinery and computers, it can now be used to deduct security devices, fire alarms, HVAC units, roofs and residential rental property. This can be helpful for small businesses that want to invest in any of these items while also saving money on their taxes.
Business vehicle depreciation has increased as well, making it more advantageous for many businesses to purchase vehicles instead of leasing them.
The new tax law also lowered corporate tax rates. However, most small business will not be able to take advantage of these lower tax rates.
Will it Help?
These changes to the tax law will be beneficial for many small businesses. However, the exact amount of benefit each business will receive is heavily dependent on the specifics of the business's situation. In addition, because these laws are new and can be confusing, it is important for businesses to make sure their tax returns are completed by someone who understands the law in order to avoid penalties.
At this time, most of the provisions in the new tax law that are helpful for small businesses are set to expire in 2025.
Getting the Most out of Tax Reform
The latest tax bill has changed several important tax laws for small businesses. In order to make sure that you are getting the most possible benefit out of this reform while also complying with relevant laws is to find an experienced tax professional to help you prepare your return. It is also important to begin planning for next year's taxes as soon as possible, as the changes to the law may affect the way you conduct your business now.
Do you have the support you need to manage your small business bookkeeping?
Schedule a 30-minute appointment to speak with a local small business adviser.