In late December 2017, President Donald Trump signed the Tax Cuts and Jobs Act into law after seeing it fast-tracked through Congress. That resulted in numerous new rules for business tax planners, including various small business tax deductions, revised income brackets, and much more. Tax experts and business owners are still parsing the finer details of the changes to the tax code, but it’s already clear that many need to revamp their accounting strategies in response.
Every business is unique when it comes to its tax considerations, and any changes to tax planning or accounting should only be made on the consultation of a tax, legal or accounting professional.
Major business tax changes
Some of the most significant revisions to the federal tax code concerning businesses include:
- A top corporate income tax rate of 21 percent.
- A new 20-percent deduction on income from pass-through businesses like sole proprietorships, partnerships, and S corporations.
- New, higher limits on business expensing for capital equipment purchases, as well as deductions on interest.
- Certain new deductions or credits for specific industries, including small breweries or distilleries.
Along with several changes to personal tax laws, the net effect for U.S. businesses is expected to be positive, at least in the near term. The Tax Policy Center estimated that total GDP for the U.S. would be 0.8 percent higher in 2018 than expected without the new tax rules. Some of this could be attributable to an estimated effective corporate tax rate below 20 percent – at least 5 percent lower than 2017 estimates according to the Tax Policy Center.
Understanding new tax rules
While many businesses will certainly benefit from new credits or bigger deductions, some tax provisions will be reduced or eliminated. Even some of the biggest provisions in the Tax Cuts and Jobs Act, such as the new pass-through income deduction, are set to expire after 2025.
Some of the lesser-known components of the new tax legislation relevant to business owners include:
- New accounting methods: According to a Forbes contributor Dean Zerbe, changes to accepted accounting practices could result in savings for businesses that have the professional resources to take advantage of them.
- Deductions for bonus depreciation on capital expenses may now reach as high as 100 percent in the year in which the purchase is made, according to Experian contributor Gary Stockton, although this deduction will be incrementally reduced starting in 2022. Companies financing their equipment purchases should be particularly aware of the details behind these new rules regarding capital expenses and depreciation.
- There are several changes to popular tax credits like the Research and Development Tax Credit, the Incentive for Exporters (IC-Disc) and the Work Opportunity Tax Credit. Businesses of all kinds may benefit from expansions or revisions to these programs, according to Forbes.
As with most business loans, you may expense loan interest, reducing your potential tax liability. Remember to check with your accountant for specifics about your own tax situation.
All in all, this latest round of federal tax reform presents many opportunities for businesses, but only if they have the resources ready to capitalize. Working with First Business’s specialty finance solutions could allow business owners to tap into the funds they need to make these changes, bring on a tax professional, or just make the most of their new savings. Get in touch today to learn more about how First Business propels clients to new heights with these specialized services.