Recent changes in tax laws means small businesses are going to get some relief on their taxes. The new legislation represents one of the most important tax revamps in many years and it offers reduced rates to corporate entities and pass-through businesses .
Insurance company Insureon, in partnership with Manta, carried out a survey of 2,700 small businesses to find out the potential effects of the new tax bill. According to the survey, 83 % of the businesses owners had an optimistic view of the new legislation and 38 % indicated they would hire extra employees as a result of the savings provided by the bill. This type of positiveness, coupled with the real benefits of the bill, could help to stimulate small business growth and spur economic growth.
Jeff Somers, Insureon president, remarks that they wanted to understand what the regulations mean for small businesses and their effect on the tone and general mindsets of small business owners as they ponder about their impact on the future growth of their businesses.
It is imperative for small business owners to keep pace with current tax legislation so they can make sure that they are paying the correct amount every year.
Deduction for corporations and pass-throughs
The most significant change that all business entities are experiencing this year is a considerable deduction for corporate and pass-through entities. A pass -through entity is a small business that is structured as a sole proprietorship, partnership, S-corporation and liability limited company. Pass-throughs comprise approximately 95 percent of all businesses in the United States. The new law gives a deduction of 20 percent to all such businesses. But there is a limitation for business that offer services like accounting and law firms and that earn over $315,000 annually (and $157,500 for those filing singly).
C-corporations will also receive a huge deduction. The new bill reduces the tax rate from 35 percent to 21 percent. The aim of the reduction is to attract the big companies back to the United States so they can hire workers and generate wealth.
Depreciation bonus for the first year
The deduction bonus for the first year is being increased from 50 percent to 100 percent. To put it in another way, firms that are making authorized property and equipment purchases may deduct the entire purchase amount rather than writing off a percentage of the expense every year. This gives business entities more funds upfront, which legislators hope will be reinvested in the business or will be utilized to employ workers.
According to Josh Zimmelman of Westwood Tax & Consulting, the new tax plan will permit businesses to write off the purchasing cost of assets in one go. The business can invest in equipment, vehicles and computers and then claim the entire expense on their tax return for 2018.
Wayne Winegarden, the managing editor of EconoSTATS and an economics and business senior fellow at the Pacific Research Institute, notes that the tax break is meant to incentivize businesses to increase their spending.
He adds that any item that makes people to finalize expensing will raise the depreciation value, reduce the tax burden and reward capital-intensive businesses.
Changes for net operating loss
Net operating losses (NOL) will not be carried back two years anymore. Instead they will be carried forward indefinitely. A net operating loss happens when the tax deductions for a small business exceed its taxable income. It works like a type of relief for a business and a business owner may apply to have a NOL to cater for tax payments in future.
The change removes the capacity for businesses to restructure past taxes while it raises the lifespan of the operating loss indefinitely. This may only be applied to 80% of the amount of taxable income.
Winegarden explains that this change was intended to give businesses an incentive to spend and take risks. He adds that knowing that NOL can be carried forward indefinitely reduces the cost of failure.
Removal of transport fringe benefits
Two small changes in the bill are the removal of fringe benefits for transportation and entertainment costs deduction. These two perks which are in form tax-free commuter plans and low-rate entertainment plans may still be provided by employers .However the firms are not permitted to write off such cost as business expenses .
The removal of the fringe benefits will probably have less of an effect than other changes observed in 2018, even though the structure of some firms may change.
Critical deadlines to keep in mind
On top of a few structural changes there are several important deadlines to remember:
-Any S-corporation must file its return by 15th March
-April 15th is the deadline for filing tax returns for 2018
-The deadlines for filing quarterly estimated tax returns are 17th April,15th June,17th September and 15th January.
Small business tax tips
There are several; things you need to bear in mind if you are new to small business tax or you are just a business. Whereas it is possible to prepare returns on your own, you should seriously think about hiring a CPA. A taxation professional can ensure that you are capitalizing on all available deductions, and more critically, make sure that you are paying the correct tax amount. Here are a few extra tips:
– Keep thinking about taxes throughout the year. A small business owner should avoid viewing tax like something that is done once every year. Instead, tax planning must be done throughout the year. Doing tax returns at the last minute is more complex, and it restricts your options for saving money.
-Take note of any changes in tax laws. Even if you get skilled professional to assist you, it is important to keep an eye on news related to tax laws. This will make sure that your tax professional does the best he or she can and it also means you will stay informed as a small business owner. Peruse the business pages and retain an interest in the work that Congress is doing in regard to tax laws.
-Avoid making assumptions. Tax planning is a gamble to some degree. Do not make business decisions on the assumption that specific tax breaks will be adopted or that particular policies will be made into law.