There has been a lot of talk about the new tax plan that was voted into law at the end of the 2017 calendar year. Many of the public debates turn into political arguments with each side claiming completely opposite things about the same bill, so it isn’t always easy to understand how the new bill will directly affect you and your small business. If figuring out where you will land in the new tax laws in 2018 is important to you, here are a couple of ways the new laws will affect small business owners.
Most significantly, the corporate tax rate will be lowered from 35% to 21%, this is a flat rate that applies to large corporations and will not directly affect your small business. However, unlike the flat tax rates of corporations, many small businesses operate as pass through entities, these include: Sole proprietorships, Partnerships, LLCs, and S-Corps. This means the business income passes through the small business and is reflected on the owners personal taxes. Beginning in 2018 small businesses will see a 20% reduction of taxable income, meaning they will only pay taxes on 80% of their qualified business income.
Also impacting families with small businesses is the overall lowering of tax brackets. Across the board Americans will be paying less in taxes in the coming years lessening the burden on small business owners and hopefully putting extra money in people’s pockets to spend in local small businesses. Below are two charts outlining exactly how these numbers are changing.
Regardless of your politics, there is no denying that this new tax bill looks good for small business owners. Only time will tell how this will all play out in the real world, but for now you can rest assured knowing that the new tax laws in 2018 will pay off for your small business. For more information about taxes, or to learn more about how we can support your small business with our bookkeeping and tax filing services, contact us today.