The following is an article “Going Ahead With Tax Benefits” by Marc Primo.
In business, taxes remain a vital aspect that requires knowing what to pay and when to settle it. Though the process may be a bit too taxing (pardon the pun) for some, setting up an efficient plan will help you develop promptness in your filing and develop your acumen in tax saving strategies.
For now let’s tackle the Tax Cuts and Jobs Act of 2017, or the Trump Tax Cuts Act, which has its own pros and cons for the new entrepreneur. Here, we shall itemize some details that can help you and your tax expert get the most out of your benefits.
First, the Trump Tax Act poses some good things for small businesses in the form of tax rate reductions. Upon passage of the Act, corporations are given a lower 21% tax rate from a previous high of 39.6%, while small businesses can now enjoy an income deduction at the start of their annual taxes. This gives them an additional 20% deduction from their net profits if they qualify. Entities with higher income levels are excluded so it might be smart if you consult your tax expert to determine if you qualify for the benefit or not.
The U.S. Congress has also started altering the deductibles on business assets through the Act. These include the procurement of equipment, machinery, and vehicles via accelerated depreciation limits that can help your small business save more. On the other hand, bonus depreciation for larger acquisitions was appreciated to 100% for properties along with the purchase of used assets.
With these new changes in tax cuts, your business (given that your annual income is less than $25 million) can take advantage of the new provisions of the law that allow you to adopt cash accounting approaches. This only counts income and expenses after they are received or paid, and is far better than the previous IRS method of accrual accounting, wherein businesses are required to count a sale upon the issuance of an invoice regardless of a late receipt in payment.
Another pro about the Trump Tax Cuts and Jobs Act that can help your small business get ahead is the new Family Leave Tax Credit law. This provision gives you tax credit for institutionalizing family leave benefits for your employees. To avail of this, you must have your ‘family leave/paid time-off’ policy in writing and award employees 14 days of paid leave credits annually. The tax credit is then effected into your annual business tax.
While there are good changes from the Act, there are also some drawbacks that somehow serve as a trade-off for its passage. Prior to last year, there was no limit for businesses to take interest expense tax deductions. This tax deduction proved to be helpful in paying for business loans while businesses enjoy tax cuts. Today however, small businesses that have an annual average gross receipt of more than $25 million for the past 36 months are limited to only 30% of their EBITDA.
While the new law can be pretty complex for a small business, make sure you are always ready for tax season by keeping your income and expense records in check and consulting your tax expert on which tax benefits you qualify for. This way you can make sure that you enjoy the tax cuts due you and that your business stays afloat despite these changes.