It has been 30 years since there has been a significant tax reform, and the Tax Cuts and Jobs Bill that recently passed is certain to impact everyone -- from individual taxpayers to business owners. If you have been in the accounting business for more than 30 years, you might notice the similarities between today’s climate and of President Reagan’s Tax Reform Act. The changes were so broad that it became known as the “Accountants’ Full Employment Act of 1986.”
Much like the previous sweeping tax reform, this new tax act is likely to drum up a great deal of business for accountants. The best way for accountants to take advantage of this potential boon is to demonstrate an intimate awareness of all the different ways the TCJA affects the majority of small businesses. In that spirit, consider this a crash course in tax reform for small businesses.
How The Business Owner Is Impacted
This new tax code was intended to provide benefits for the middle-income class and the business owner, according to the Trump administration. Speaker of the House Paul Ryan was quoted as saying that "Typical middle-class families will see bigger paychecks" in an attempt to "deliver relief to the American people" in the face of recent economic hardships. So how exactly will this bill affect the American business owner?
If you are a business owner (especially a small business), the biggest change that impacts you will most likely be the new tax rate of 21% for pass-through businesses such as S Corporations, partnerships and sole proprietorships. These companies are being referred to as pass-throughs because expenses and revenues for these organizations are "passed through" to the owner's personal tax returns at individual rates. This differentiates them from the well-known C Corporations that pay a lower tax rate.
With the new tax laws, there are limitations for businesses such as accounting, consulting, law and other similar professional services. These businesses are excluded in part from the 2017 tax breaks because some legislators believe that these professions don't have as many employees or high earner and are therefore not entitled to the same small business tax breaks.
The new reform is organized to reward your business if you have a lot of employees and it incentivizes other companies to go out and hire new employees. While many small businesses can benefit from these tax code changes under the Trump administration, your business may not, depending on its classification (for example, S Corporation versus C Corporation). So now is the time to hire and expand your small business as a result of the new tax law.
Much like the previous sweeping tax reform, this new tax act is likely to drum up a great deal of business for accountants. The best way for accountants to take advantage of this potential boon is to demonstrate an intimate awareness of all the different ways the TCJA affects the majority of small businesses. In that spirit, consider this a crash course in tax reform for small businesses.
How The Business Owner Is Impacted
This new tax code was intended to provide benefits for the middle-income class and the business owner, according to the Trump administration. Speaker of the House Paul Ryan was quoted as saying that "Typical middle-class families will see bigger paychecks" in an attempt to "deliver relief to the American people" in the face of recent economic hardships. So how exactly will this bill affect the American business owner?
If you are a business owner (especially a small business), the biggest change that impacts you will most likely be the new tax rate of 21% for pass-through businesses such as S Corporations, partnerships and sole proprietorships. These companies are being referred to as pass-throughs because expenses and revenues for these organizations are "passed through" to the owner's personal tax returns at individual rates. This differentiates them from the well-known C Corporations that pay a lower tax rate.
With the new tax laws, there are limitations for businesses such as accounting, consulting, law and other similar professional services. These businesses are excluded in part from the 2017 tax breaks because some legislators believe that these professions don't have as many employees or high earner and are therefore not entitled to the same small business tax breaks.
The new reform is organized to reward your business if you have a lot of employees and it incentivizes other companies to go out and hire new employees. While many small businesses can benefit from these tax code changes under the Trump administration, your business may not, depending on its classification (for example, S Corporation versus C Corporation). So now is the time to hire and expand your small business as a result of the new tax law.