It’s official. The GOP tax plan has been passed and has been signed into law by President Trump. With this being the first major tax reform since the days of Reagan, many small businesses are unsure of where to begin in their preparations for the tax updates. Luckily, we’ve got you covered.
The Business Tax Updates: What You Need to Know
With multiple versions of the GOP tax bill introduced and the rush to get it passed by both the House of Representatives and the Senate before Christmas, you are excused for not knowing all of the particulars. Here’s a quick breakdown that will cover the essential things you need to know about coming updates to the tax code.
It will not impact your 2017 taxes
We know of a few people who have thought that the new tax updates would affect their 2017 returns (the ones you are likely getting ready to file this spring) and worried that their accountant would not have enough time to learn the ins and outs of the bill. However, a couple of things to point out:
- We’ve kept up with the bill and you can call us directly so that we can answer any questions you may have.
- The legislation does not retroactively change the way you are taxed as a business or as an individual.
Though you are filing tax returns in the year 2018, you are filing them to cover your income for 2017, meaning that unless something drastically changed in terms of your finances, your very next return will likely look similar to last year’s. That being said, getting up to speed sooner rather than later will be beneficial as some businesses look to set their budgets and priorities for the coming year. Knowing how you will be taxed for the year may play into that strategy.
The corporate tax rate is being reduced
Dropping from 35 percent to 21 percent, the new corporate tax rate is expected to drive growth across multiple industries. Some companies like AT&T and Comcast are already spending some of their anticipated tax savings to give bonuses to their employees. It may be that the reduction in corporate taxes will give you company the liquidity you need to make similar investments in your team, equipment or something else. Further, companies who focus on B2B sales should keep in mind that their clients will likely have expanded spending capacity.
Pass-through entities will enjoy reductions as well
If your small business is an LLC, S-corporation or other similar pass-through entity, fear not. These tax updates will not miss you. Those businesses will see a 20 percent deduction, though this will not apply to certain service businesses unless your income is less than $315,000 for married couples or $157,500 for individuals. Do keep in mind that if you or a partner also draws a salary from your pass-through entity, it will be taxed as regular income. This is one aspect that will impact everyone differently. Some small business owners would do well to consult with a business lawyer to weigh the benefits of reclassifying their salaries as business income and the steps to do so.
Major tax update for multinational companies
If you own an American business that happens to do business in other countries, the law currently holds that you owe taxes on any income generated anywhere in the world. However under the new tax legislation, those companies will be able to defer paying taxes on those profits until they bring the money to the United States.
In the meantime, mark your calendars for early January. Though an exact date has yet to be announced, Gov. Doug Ducey will be giving his State of the State address. This speech happens every year and will be useful in helping anticipate the governor’s priorities and which tax updates we may see on the state level in the coming legislative session.
Still have questions about tax updates and how they will impact your business? Call us to schedule a consultation as soon as possible. We can work together to build your year-end bookkeeping checklist, review your organization’s previous performance and determine what steps you can take in the coming months to maximize the benefit of tax reform to enhance your business. Whether it is capital investments that will increase your earning capacity or other types of investments in the talent you need to grow your business, we can figure out what will yield you the most liquidity and help you determine where you will see the best ROI in the long term.