Small business finances already are challenging—then, every year the federal government piles on the headaches with tons of changes in tax law for them to wrestle with. The current administration recently ramped the shifts up, when they voted in the most significant tax law overhaul since Ronald Reagan dwelled in the White House. Some of these changes are good, others bad—but if you don’t familiarize yourself with the shifts in tax code, things at your small business could get ugly.
Unfortunately, even tax wizards (and we’re guessing you’re not among that number) can find keeping up with changes in US taxes…well, taxing. Following are a few of the highlights (or lowlights, if you prefer)—for a deeper dive, it’s a good idea to check with your accountant, and have a chat with a small business finances like Daliah at My Small Business Pro (you can reach out to her here for advice).
Delightful deduction news
Not all of the tax-law changes affecting small business finances are bad. This one actually is pretty good—the tax burden borne by business owners, partners and shareholders at S-corporations, LLCs and partnerships—folks who pay their share of a company’s taxes via their respective individual tax returns—has been lowered, thanks to an automatic 20% deduction. Now, here’s the tricky part: that 20% deduction only applies to certain types of organizations—here’s one case where it’s a good idea to put in a call to MSBP and/or your accountant to check and see if you’re one of the fortunate souls who can reap the benefits of this new deduction.
The entertainment benefit is over
For companies that previously treated clients to Cubs games, concerts and other enjoyable events, the fun might be over—the Tax Cuts and Jobs Act (TCJA) puts an end to the deduction of such entertainment expenses from your returns. Fortunately, meals can be deducted at 50%, but even then there may be exceptions. What’s more, tax experts expect the IRS will be scrutinizing such deductions more than ever before.
Equipment investment improvements
If you’ve been hesitating to purchase new equipment for your small business, now might be the time to plunk down the money for that gear. The new tax act enables small business professionals to write off up to 100% of the cost of new or used equipment purchased through the end of 2022. A caveat to watch out for: the bonus depreciation percentage is being phased down, from 80% for property put into play during calendar 2023, to 20% for property put in service during 2026.
Flat corporate tax rate
Before the latest wave of tax tweaks, C corporations paid taxes at a rate ranging from 15% to 35%. Now, all C corporations are subject to a single, flat tax rate of 21%. This is great news for companies that stood at the 35% rate before the changes came about—and not so great for companies that enjoyed the lower 15% rate.
No more harassment-related writeoffs
In a bit of legislation crafted by Senator Bob Menendez (D-NJ), misbehavior caught up in the wide net of the #MeToo movement no longer can be deducted from taxes. This means companies cannot write off any settlements or legal feels related to sexual harassment if payments are subject to non-disclosure agreements. While there’s still some questions (even among tax experts) about whom this law affects, there’s no question that this new measure empowers women in the workplace. That’s something everyone at My Small Business Pro celebrates.
This list of changes is by no means complete—if you’d like to chat about what other shifts potentially impact you and your small business, reach out to My Small Business Pro.