The U.S. Tax code was overhauled for the first time in nearly 30 years in 2018. Sweeping changes from individual deductions to sizeable corporate tax incentives inspired the IRS to form an internal oversight commission to educate taxpayers and businesses about the new laws.
If you’re not sure about how the changes will affect your business, you’re not alone. A survey by the National Association for the Self Employed (NASE) showed that 83 percent of small business owners are in the same boat. In addition to recalculating your tax rates, you’ll need to acclimate to the changes next year.
If you are a small business owner and want to learn how the tax changes for 2019 affect you, read on to find out more information.
Some Tax Changes for 2019
The new tax structure affects all U.S. businesses. Whether you’re responsible for just your own entity or you’re working with the finances of a larger company, you should be familiar with the changes below:
The largest of the tax breaks went to large corporations. The corporate tax reforms mean to entice larger corporations to headquarter their companies here and save money on taxes. These entities received a 40 percent cut, from 35 to 21 percent.
These corporations also now pay the tax rate of each company in which they reside instead of the U.S. tax rate no matter which country they are in.
Another significant change lowered taxes on pass-through companies. Pass-through companies comprise roughly 95 percent of all businesses in the U.S. and consist of S corporations, sole proprietorships, and partnerships.
The tax bill gives these companies a new 20% tax deduction, and then a 29.6 percent tax on the remainder. The full deduction is in effect until the income for individual business owners reaches $157,500, and married filing jointly business owners’ income reaches $315,000.
If the pass-through company is a service trade, the income caps are at $207,500 and $415,000.
If an owner of a pass-through company takes a client to dinner, half of that expense is deductible. Many entertainment expenses are no longer deductible, as the event must now focus on the business.
One convenient change to the tax code is the new ability to write off 100 percent of equipment depreciation the first year of purchase instead deducting a small amount each year. This is an incentive for business owners to upgrade their computers and other electronics.
The new changes are hard to understand because there are exceptions and details that can go overlooked. Overviews like this article are handy and give small business owners a snapshot of what to expect.
Business owners must keep meticulous records and be aware of how the tax changes for 2019 will affect their operations in the coming year. They also may be inclined to make a decision about what class of business they are; LLC may be a better option than S corporation, for example.
Remember, help is available. If you find yourself wallowing in legalese and confusing tax code, consider seeking out a professional who can help you make sense of it. They will always make sure you get the best tax advice and help your business thrive.