Tax Reform Brings Several Benefits to Small Businesses
An author and Certified Financial Planner, Robert M. Ryerson is a respected presence in the Freehold, New Jersey, community. Among his activities, Robert M. Ryerson teaches a comprehensive retirement planning course at a number of colleges and universities statewide.
With Congress having enacted a new tax reform law in late 2017, individuals and small businesses are set to benefit in a number of ways. For C-corporations, the change involves a lowering of the tax rate to 21 percent from 35 percent.
Some 95 percent of American companies are structured as pass-through entities, which include partnerships, sole proprietorships, LLCs, and S-corporations. Under the new rules, pass-through companies can now take an across-the-board 20 percent deduction on taxes. There are certain restrictions, such as those placed on service-based businesses that exceed specific annual revenue thresholds ($157,500 for a single-filer entity).
Another change is that qualifying equipment purchased for a business now receives a deduction equal to the full amount of the asset. Previously this was 50 percent, with a portion of the asset written off each year.
In addition, net operating losses (NOL) are no longer backward-facing but are applied going forward, indefinitely. This occurs in situations where business tax deductions exceed taxable income and offers tax relief in that the NOL can be applied to tax payments in the future. A downside is that taxes completed in years past can no longer be restructured to reflect current realities.