What a lot of noise there is these days about the new tax law. This blog will provide a few preliminary ideas on how you may be affected by the new tax law. However, before you make any decisions, contact your tax professional. Taxes are complicated no matter how you look at it – but much more so when they change the laws.
Can’t I just read the new tax law and get answers based on that?
Not really, for several reasons. First the tax bill is over 450 pages long. That’s a lot to digest. However, the law must still be translated into IRS Regulations and Rulings, which apply the law to different situations. The IRS must also design or redesign forms and instructions to be used by those withholding taxes to calculate how much to withhold and by the public to calculate what is owed. Then, of course, accountants must review these documents before they can advise you what steps you should take. In other words, the new tax law still has to go through several more steps of implementation before it can be used by tax professionals and us regular folks.
There is good news and not so good news.
The tax forms and instruction you use for 2017 income (filed by April 15, 2018), are not affected by the new law. So, your tax prep this year will be based on the old laws. However, effective January 1, 2018, your withholding and estimated taxes WILL be affected. If you receive income for another source besides from your own business, that employer should handle some of the recalculated withholding.
We say “some” because every situation (tax payer) is unique and many people use the “number of exemptions” to fine tune the amount withheld to hit the sweet spot – no takes due but very little of a refund due either. If you have employees, you will have to recalculate withholding or your payroll service will do it. The IRS won’t have the details worked out until February, so keep tuned for more details.
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But what did they do for small businesses?
For corporations, often called “C” Corps, the tax rate was reduced from roughly 35% to roughly 21%. But most small businesses are “S” Corps, LLCs, Partnerships or Sole Proprietorships (Schedule C) companies. They are called pass-throughs because business income flows to the individual’s personal tax return and is taxed at personal tax rates. So congress decided to give small businesses a break by exempting 20% of their income from taxes, as long as they earn less than $315,000 per year.
Is there anything else in the new tax law for Small Businesses?
One additional feature that may affect your small business is the expansion of the Section 179 expense cap from $500,000 to $1,000,000. This applies to equipment and allows the business owner to claim the entire cost of the purchase at once instead of using depreciation tables. This will speed up the write-off for equipment and other capital investments.
What else do I need to know about the new tax law?
Obviously, there are MANY other changes for us for our personal taxes, including reduced tax rates and a realignment of the income brackets. Plus, the standard deduction has been expanded, making the use of itemized deduction less advantageous for many tax payers. But the exact nature of these changes, and how they apply to you, will have to wait for the IRS’s official interpretation of the law.
The devil is in the details.
How the 20% exclusion of business income will affect your income subject to Self-Employment Tax (Social Security) is unclear. But even if it doesn’t reduce your SE tax, it is still a substantial break. Hang on, this is going to be a bumpy ride.
If you have any questions, please give us a call at 770-952-5168 or contact us online.
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This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.