Tax Reform

Understanding the Impact of Tax Reform on Small Businesses

Taxes are an inevitable part of any business both small and large. While large businesses enjoy several benefits owing to their size smaller ones require some amount of relief from the state’s end. President Trump’s regime has favoured larger businesses for a while allowing them to offer raise and bonus to their employees.

However, not much attention has been given to smaller businesses until now. Experts feel that small businesses stand a better scope of benefitting from the new tax laws passed recently. 

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New tax changes

The year three major changes have been made in the tax laws in order to help the small businesses. The first change is the reduction in the rate of individual taxes; secondly, extra 20 percent tax deduction for businesses that are passing as pass-through entities; thirdly, the expansion of the filling under Section 179 which will allow expensing in terms of equipment related to business.

These changes are likely to bring in more profits for the smaller business companies even though all rules will not be advantageous for them.

  • Definition of Small Business: Even before understanding the implication of these laws on smaller businesses, it is important to look at the definition of small business. According to the Small Business Administration, smaller businesses are categorised by the industry as well as the income size. Even some larger companies for instance mining with 1,500 or less employees are also labelled as a small business. Some of the smaller business owners even have 5 to 10 employees. Many such employers in fact as many as 80 percent pay taxes as individuals through the pass-through entities. This means that in spite of running businesses they are paying taxes as individuals and saving money. This will allow them to save a tidy bit of money from the business and help it to grow. 
  • 20 per cent Deduction: The second important change that is going to benefit the small businesses is the additional 20 per cent deduction that pass-throughs can demand on taxable income. However, this is not meant for all small businesses. For instance, doctors, lawyers, tax accountants, etc cannot take the benefit of this new tax law. Incidentally, people who actually qualify for the same might not get the entire 20 percent also according to experts. But it will at least offer some amount of relief to the people. This is likely to help the small businesses create a cushion against financial crisis and slow periods which normally affect a company pretty bad. For small business owners creating a fund from which to help out employees or save a bit of capital becomes quite difficult. But this tax law should be helpful on that front. Businesses dealing in computers might not feel a major difference if they have to upgrade their machines and devices. But still, it would help businesses to grow and create more employment opportunities.
  • Benefits without using pass-throughs: Some small businesses do not file using the pass-throughs but they can still get the benefits under Section 179. They can still save money and invest it in improving their research and hiring more people for the same. 

Understanding the laws

The changes in the tax laws are still very new and many of the small business owners are yet to get a hang on the subject. Understanding the pros and cons of the tax and how much they stand to benefit from the same is highly useful for creating their business plans and additions that they want to introduce in the new financial year.

Sitting with the tax lawyers like Julio Gonzalez is very important in understanding how the laws are going to affect the business. They need to go through the financials and scrutinise every single detail and transaction to find out how the new tax plan will affect them.  

What to focus on?

As the new tax laws and codes take shape some of the things that small business owners can do to improve their work are listed below:

  • Investing in the business with the extra money is the best option. It will help the business grow and the workers will also find motivation and assurance in the work and the brand. Introducing bonuses and making structural changes are some of the things that you can do. 
  • Be prepared for more changes because not all the changes that have been introduced will last all along. Many of these will be changed the next year or the year after while others will last till 2025. 
  • Stay informed of the upcoming changes that will appear in the near future and what will be their implication of your business. Getting hold of a good tax team like the one with Julio Gonzalez which is abreast will all the changes and can understand their effects on your business needs to be available. The team will be responsible for finding out ways in which you can use the tax laws to your benefit and improve your small business.  

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