The proverbial saying that death and taxes are two things we humans cannot avoid comes to mind each year as we come nearer to April 15. This would be a good year to make sure, even if you are a solopreneur, to seek advice from a CPA on what the new tax laws might mean for you. The media makes you anxious with disbelief that you will actually gain from the Trump tax reforms, so you are obviously on edge.
Do not fret my friends, all is well. The overwhelming majority of small businesses and self-employed entrepreneurs can expect to benefit from key changes and updates to the tax code that will help save both time and money. As we have mentioned previously, few of us go into business as tax experts, and are thus left befuddled by how the sweeping changes ushered in in 2017 will affect us. From a macro perspective, the goal of President Trump is based on the simple principle of small businesses reinvesting their tax savings directly back into their day-to-day business operations by purchasing new equipment, investing in expansion, and/or hiring new employees, helping to spur overall economic growth throughout the country. After all, this is how America grows, via small businesses.
Let’s take a look at some of the advantages of the new tax code for you and your business.
Most Small Businesses Can Now Enjoy a 20% Business Income Deduction: This is a bit tricky to explain, but basically, the feds wanted to give small businesses a similar tax break to their C Corp brethren. So to give small businesses a tax cut, Congress had to come up with a new tax deduction: the 20% Qualified Business Income Deduction. Put simply, if your business’ taxable income was $100,000, then after the 20% deduction, you only have to pay taxes on $80,000.
Opportunity to Pass More Wealth Tax-Free to the Next Generation: The socialists among you are frothing at the mouth like a psychotic patient on lithium at this notion. Let’s see, would I rather give my hard earned money to my family, or someone who crawls across the border illegally and doesn’t speak English. That’s a tough one. The new tax reform bill doubles the exclusion amount in 2018 to $11.9 million for individuals or $22.36 million for married couples. This means many more small business owners, whose estate is valued under those exclusion amounts, will be able to pass on their businesses and financial legacy tax free — at least for a while.
Mortgage Interest will be affected: The mortgage interest deduction still exists, but far fewer people will be claiming the deduction on their tax returns. This is because the tax reform bill nearly doubled the Standard Deduction from $12,700 to $24,000 for married couples filing jointly, and from $6,350 to $12,000 for single filers, which means it won’t be worth it for many Americans to itemize their deductions.
The 2017 Tax Cuts and Jobs Act is a major piece of legislation, and it’ll most likely take years for all the details to get ironed out. Make an appointment with your CPA and discuss the most pressing issues, such as the 20 percent business income deduction and the estate planning aspect of your portfolio.