New tax laws and regulations change frequently. Knowing how the upcoming tax changes will affect your small business is crucial. Being prepared for changes will help you through the tax season. Consult with your accountant now to ensure you are aware of how these changes will affect your business.
Tax Changes Affecting Small Businesses
The Tax Cut and Jobs Act of 2017 will have a significant effect on your small business tax. Increasing economic growth throughout the United States is the goal behind the sweeping changes. The changes do depend on numerous factors including the amount of profit, hiring, cash on hand, and expenses.
Keeping accurate records with valid documentation of your daily operations will help you through the changes. The changes are extensive, but a partial list includes:
- Corporate Tax Rate: Starting in 2018, any small business with a C corporation standing will have a flat tax rate of 21 percent.
- Tax Rate Deduction: Other small business classifications have specific criteria to be met in order to claim the new 20% deduction of the amount of the pass-through business income.
- Corporate AMT: The elimination of the corporate Alternative Minimum Tax (AMT).
- Bonus Depreciation: When the property reaches specific criteria, deduction depreciation will begin at 100%. Starting in 2022, the elimination of the bonus depreciation will be reduced to 80%. Taking four years, the lowered deduction is the first step to phasing out the bonus depreciation.
- Vehicle Depreciation: Specific limits go into effect on the amount of vehicle depreciation you will be able to deduct. When a vehicle ineligible for bonus depreciation is put into use after 2017, a maximum of $10,000 depreciation deduction is allowed. After 2017, new limits will go into effect.
- Equipment Expenses: The amount of expensing equipment gets a major increase. Up from the $510,000 cap in 2017, the new amount starting in 2018 is 1 million.
- Work Opportunity Tax Credit (WOTC): Hiring an individual from predetermined target groups, enables you a $1200 to $9600 credit to help reduce your tax liability.
- Family and Medical Leave: A new credit will be in place to reduce your overall liability. An employee will be able to take a maximum of 12 weeks of leave within one tax year.
- Cash Method of Accounting: Another specific change in the new tax year focuses on accounting methods. The number of taxpayers using the cash method of accounting increases. The changes must meet specific guidelines including the number of gross receipts and the type of business.
- Net Operating Losses: With exception to property and casualty insurance companies, an 80% cap on taxable income is put into place. Unless you are a farming business, the two-year net operating loss carryback was eliminated.
If you are unsure how the above changes or any other tax modification will affect your small business, seeking professional help is crucial. Some of the changes will only affect the 2017 tax year, while others may take four years or longer to phase out. Contact the tax professionals at Ernst Wintter & Associates today.