Small Business Owners and New Tax Laws
With tax changes coming into effect in 2018 via the Tax Cuts and Jobs Act, there are many potential changes that small business owners will need to factor into their business. However, in order to benefit from these tax changes, it will help to familiarize yourself with the details of the new tax code and consult with a small business attorney who is familiar with the changes.
The biggest headline of the bill was the fact that the corporate tax rate for C-corporations has been reduced from a maximum 35 percent tax down to a flat tax rate of 21 percent. This includes most major companies, as well as some smaller ones. Many small businesses are also likely to be impacted by the changes that apply to businesses structured as “pass-through” entities.
A pass-through business entity is one where the business entity itself does not pay a corporate income tax, but rather passes it through to be paid by the business owners at individual tax rates. This applies in setups such as an LLC, partnership, or sole proprietorship. Because of the change in corporate tax rates, the new tax laws allow for a 20 percent deduction against pass-through business income, helping make up for the disparity in tax rates. A small business lawyer can help set up your company in a position to best take advantage of those changes.
What is the impact of depreciation expenses?
The new tax laws will also impact the type of depreciation expenses that a business can take. Some of the long-term depreciation rules have been changed, in many ways making the laws around depreciation even more complicated. It is more important than ever to consult with a business lawyer in Austin who can help you sort through the complex regulations surrounding depreciation.
Does it Affect Small Business Owners?
One major change that figures to have a negative impact on businesses relates to the area of business deductions. Eliminated entirely are business deductions for entertainment expenses, certain employee meals, and the reduction or elimination of reimbursement of employee commuting costs. One example that will hurt small businesses is the ability to deduct only 50 percent of the cost of employee meals that are provided on or near the workplace.
These are just some of the changes that are being put into place by the new tax laws in 2018, with more changes likely to come in the future. While many of these changes will have positive impacts on small businesses, they could have a negative impact as well. What is important is educating yourself on what has changed, and how it will impact your business. One of the best ways to do this is to get the help of an attorney in Austin who specializes in small businesses.
At the Lawyer Referral Service of Central Texas (LRS), we are able to refer your needs to a qualified, licensed, and insured professional attorney in the area. A knowledgeable attorney will not only be there to advise you on changes, but help you take advantage of them as best as you can. Contact us today for a referral.