Last month, the GOP’s big tax reform bill passed and will impact the tax years of 2018 and beyond. Your 2017 tax return will not be affected, but it’s important to understand the implementations of the new tax bill so you can be better prepared for what is on the horizon.
Whether you’re the CEO of a large corporation or a new small business owner, the Tax Cuts and Jobs Act (TCJA) will impact you in some form or another. Take a look at some of the most notable changes that will affect your business taxes:
New Corporate Tax Rate
The new tax bill enacts a flat 21 percent corporate tax rate for all C corporations. This is compared to the sliding scale used before that was dependent on income, with the maximum rate being 35 percent. All corporations (including personal service corporations) will now pay a flat 21 percent rate, regardless of income.
Small Business Tax Rate
Most small businesses are pass-through entities such as sole proprietorships, LLCs, partnerships and S corporations. These entities can now claim a 20 percent deduction of their pass-through business income. Some limitations do apply, especially for certain service businesses, and these deductions are set to expire after 2025.
Repeal of Corporate Alternative Minimum Tax
The corporate alternative minimum tax (AMT) used to be imposed at a 20 percent rate. This has been repealed, though corporations will still be able to use their AMT credit carryovers for the tax years of 2018-2021.
Tax-Deductible Expenses
The tax-deductible dollar limits for equipment, vehicles and other business expenses will increase. Bonus depreciation will also be increased for equipment and property.
Employee Tax Withholdings
Note that all tax changes were enacted on January 1, 2018, and will impact your employee paycheck withholdings. The standard tax deduction has doubled and personal exemptions have been eliminated.
These are just a few of the significant changes presented by the new tax bill, which is the largest tax reform in over 30 years. It is more important than ever to work with a business tax expert who understands the changes and can help you cover all the details for your 2018 tax year and into the future.
Count on the tax professionals of Ferguson, Timar & Company to be your tax reform resource. We’re here to answer any questions you have about the new tax bill and we’ll keep you on the right track to maximize your business tax returns. Contact us today and set up a tax consultation or to discuss any other accounting and bookkeeping services you need.