On Wednesday, December 20, Congress passed a sweeping tax reform bill. While it’s easy to find a calculator that shows the impact to individuals, the effects to small businesses are less clear. Here’s what we know so far – and what you should do as a business owner NOW at the end of 2017.
Disclaimer: We’re certainly not experts on this topic – consult your CPA for the best results. What did we miss? We’d love to include your contributions – use the comments on this post or go over to LinkedIn to discuss. We’ll update this post and quote you by name, unless you tell us not to.
- “Pass-through” businesses get their taxable income reduced by 20 percent. This includes sole proprietorships, partnerships, and S Corporations. Not one of those? Time to convert, if you can – unless you’re a services business making over $315,000, you will benefit from this deduction immensely. (Note: This provision expires December 31, 2025.)
- If your employees deduct unreimbursed business expenses, tell them to do it NOW – any deductions they’re taking for home offices, depreciation on their personal computers, or duties to professional societies and journals go away starting in 2018. Get those paid now – you can claim this deduction in 2017, but not in 2018. (Here’s H&R Block’s guide on deducting business expenses.)
- It’s usually a good idea to accelerate your expenses and delay your income this time of year; this year, it’s an even better idea. Wait on sending your December invoices until January if you can.
- Are you a corporation that does business abroad? According to Inc, corporations that do business abroad will no longer be taxed by the U.S. on the profits they generate overseas.
- Do you have employees on salary? You need to start thinking about how you’ll adjust their paychecks in 2018. According to the Tax Foundation, “the standard tax deduction has doubled, while personal exemptions have been eliminated. Plus, as much as 28 percent of federal tax may be automatically withheld on any bonus, commission, or supplemental wages, up from the current 25 percent rate.” However, wait until the IRS releases updated guidance – the IRS is already saying they anticipate a late release of the 2018 federal withholding tables, Form W-4, and Publications 15, 15-A, and 15-B. Keep using the 2017 information until the 2018 versions are issued.
- Do you provide breakfast or lunch for your employees? You won’t be able to fully deduct those costs anymore. Starting in 2018, you may only deduct up to 50 percent of those costs. That provision lasts until 2025, after which you will no longer be able to deduct it at all.
- Deducting interest on bank loans? This lowers the available deductions of net interest expense to 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years, and 30 percent of earnings before interest and taxes (EBIT) thereafter.
- This is a big one: If you’re needing new equipment, start making plans to get it soon. The new bill allows full and immediate expensing of short-lived capital investments for five years and increases the section 179 expensing cap from $500,000 to $1 million.
- No more net operating loss carrybacks; and carryforwards are now limited to 80 percent of taxable income. Here’s a good explainer on what that used to mean – if this applies to you, best make sure it’s done before 2018.
Two great resources for more information: Inc Magazine on the final tax bill’s impact to businesses; and the Tax Foundation’s full analysis of impacts to individuals and businesses.
How will these impact you in 2018? Please let us know in the comments or on LinkedIn.
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