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Tax Reform and Small Business

Attend our Lunch and Learn on March 28th with Chad Brown, CPA and see how the new tax reform will affect your small business.

  1. 90 percent of all business are pass-through businesses. (stat from Forbes)

  2. Pass-throughs employ a majority of the private sector workforce. (stat from Forbes)

  3. Pass-troughs are non-corporate businesses, like sole proprietorship, partnerships and LLCs, that don’t pay taxes themselves. Instead, the taxes pass through the business owner, who pays taxes on the business profits at his or her own marginal income tax rate. (from Forbes)

  4. Tax reform is a big deal to these business owners.

  5. The corporate tax rate that everyone has been talking about does not affect these businesses.

  6. Biggest win for small business may be the taxation of “pass through” income. The bill lets business owners who pay personal income tax on their earnings deduct 20 percent of the first $315,000 of earnings on a joint return. (from Fox Business, also Conference Agreement, p. 37)

  7. Expansion of section 179 expensing –

           Current law: Maximum a taxpayer may expense is $500,000 of the cost of qualifying property placed in service for the taxable year.

           Tax bill: Maximum increase to $1 million of the cost of qualifying property placed in service for the taxable year. Also increases the phase-out amount to $2.5 million. The amounts will be               indexed for inflation for taxable years beginning after 2018.

Also expands the definition of section 179 property and qualified real property. So, qualified real property may include roofs, heating & cooling, fire protection, alarm and security systems.              (from Conference Agreement, p. 212)

  1. Small business accounting method reform and simplification: The bill “expands the universe” of taxpayers that may use the cash method of accounting.” The cash method generally recognizes items of income when actually or constructively received and items of expense when paid. It is the method generally used by most individual taxpayers, included farm and nonfarm sole proprietorships. (from Conference Agreement, p. 215)

Tax Reform scenario….Note, this does not include the business owner’s business deductions, which likely would decrease taxes even more.Income & DeductionsBusiness owner’s income for 2018   $75,000Pass-through deduction = 20% of income ($75,000 x 20% = $15,000)–$15,000Taxable income ($75,000 – $15,000 = $60,000)   $60,000TaxesTax rate is $1,905 + 12% in excess of $19,050   $  1,905$60,000 – $19,050 = 40,950 x 12% = $4,914+ $  4,914Tax total   $  6,819

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