According to recent data, the newly passed Tax Cuts and Job Act does contain provisions small businesses can take advantage of with some strategic planning. This is what a new infographic by Micah Fraim, CPA reveals.
Congress passed the $1.5 trillion tax bill with temporary tax cuts for individuals and permanent tax breaks for corporations in November 2018. But businesses will be impacted differently according to size, income, industry and a number of other conditions.
For small businesses, it’s necessary to categorize your particular situation and find the right expert to take advantage of the new rules in the tax bill. Michael Trabold, director of compliance risk for payroll and HR firm Paychex, told Small Business Trends, “We’re cautioning folks in small businesses that there’s an awful lot of rules about how this is all going to play out that are going to be very specific to your own situation.”
New Tax Plan Explained
With this in mind, here are some of the things you should look out for according to the infographic by Fraim.
First, the pass-through income deduction rate is one of the provisions with the greatest potential for small businesses. With the right strategic planning, small business owners can get 20 percent deductions on income received from pass-through entities.
The deductions are capped at 50 percent of the wages paid or 25 percent of wages paid plus 2.5 percent depreciable capital assets, whichever is greater. The new provisions have some caveats, including business classification and overall income levels, as well as some deadlines.
Sole proprietorships, partnerships, LLCs and S corporations are classified as pass-through entities when it comes to federal income tax. This is because they are not subject to income tax. Owners are taxed directly individually on income with profits and losses taken into consideration.
Some of the other provisions in the new tax law include the limitation of business loan interest deduction to 30 percent. This means the earnings of a business before interest, taxes, depreciation and amortization.
Deductions of net operating losses have also been reduced along the adjustments of R&D expenditure. You can take a look at the infographic below for more details.
Getting the Right Help
Even though you may have become familiar with the old tax law, there are too many changes in the new tax bill which may jeopardize your tax liability. Until you know the ins and outs of the new bill as it applies to your business, consult with your tax expert.
Trabold stress the point best, explaining, “The business is always ultimately accountable.” So make sure you have the best help possible to get you through the upcoming tax season.
Images: Micah Fraim CPA
Aira Bongco
Thanks for this. The tax adjustments really take a while to be understood. It is nice to see all the information in this article.
Gary Kennedy
If you please, would you be so kind as to answer one question for me? I want to be absolutely certain that I handle this one item correctly and really can’t afford a tax advisor.
Just this one question: I am 75 years old, retired, and living on a retirement plan provided by my former employer, plus Social Security. I perform a part-time job that I run from my home office and qualify as a self-employed individual.
My one question: I pay a premium of $734 per month for a health insurance plan for my wife and myself. Due to health conditions, I have no choice but to be using this expensive plan. Can I deduct these monthly insurance premiums, along with my regular health costs, on Schedule C, Form 1040? Thank you so very much.
Thank you for this blog for small business tax changes. It’s very helpful.