It took 30 years before the Congress finally passed an impactful tax reform featuring some serious changes. The goal of the Tax Cuts and Jobs Act (TCJA) is to push economic growth in the United States by fixing tax arrangements for small business and corporations and some of those changes may directly affect your business.
Like other tax reforms, there are advantages and disadvantages to TCJA as well. However, the overall reaction of general business owners in terms of its effects are on a positive side. As the tax reform bill signed into law begins, small and medium business owners received good news and significant tax planning opportunities that should be considered to save up more money, grow their business and create more jobs.
Here are some of the most beneficial tax planning opportunities that business owners should look into:
1. Reconsider Your Choice Of Entity
You may want to rethink your choice of the entity due to the major changes created by the new law. From the top rate of 35 percent prior TCJA, C corporations now have a flat rate tax of 21 percent which has caused business owners to consider restructuring or structuring their business operations as a C corporation.
The answer, however, can still be quite complicated. A C corporation may look attractive now because of the lower rate but it may still be best for you to continue operating as a pass-through entity.
A lot of pass-through businesses will be granted with 20-percent tax deduction under Sec. 199A of the Tax Reform Act. Those who are not in the personal service business and have employees, up to 20 percent of the taxable income from that business qualifies for a deduction. For those that qualify for the 20 percent deduction, business owners will experience substantial tax savings in their personal liabilities.
2. Start Acquiring Business Assets
The new law offers a great opportunity for business owners to start acquiring business assets. It’s best for the business to take advantage of very generous deduction rules in Section 179 that says the maximum amount a business can spend this year is $1 million (it was $510, 000 in 2017 which is prior the new law).
In addition, the Section 179 deduction is also available for specific tangible personal property used mainly to furnish lodgings and several improvements to the nonresidential real property. A first-year bonus depreciation can also be claimed by the business under Section 179.
To put it simply, certain payments on the rental-related property such as roofs, heating, and ventilation systems can qualify as eligible expenditures. Therefore if a business purchases significant assets within the year especially for rental units, business owners can get a lot of benefit from it.
3. A More Favorable Accounting Method Can be Adopted
There is a great expansion of the ability to use the cash method for tax years after 2017 ends. The cash method can now be used by all entities (except tax shelters) with a three-year average annual gross receipts of $25 million or less. It doesn’t matter whether the purchase, production, or sale of products produces income.
4. Keep the New Business Interest Expense Limit In Mind
All businesses regardless of its form will be given a net interest expenses disallowance. The adjusted taxable income of the net interest expenses in excess of 30 percent of a business will no longer be allowed beginning 2018. However, business owners don’t have to worry about this rule if their business has average annual gross receipts of $25 million or less three years prior.
5. Look Into Qualified Equity Grants
A new tax election is provided by The Tax Cuts and Jobs Act for equity-based compensation from employees working privately. It mainly involves the election covers stock received with regards to the exercise of an option or in settlement of a restricted stock unit, or RSU. A lot of employees are struggling with these forms when it comes to dealing with taxes because there is no way for them to liquidate their shares and pay their tax bill. It gave them a great sense of relief when the new election was provided.
To make sure you get the best business financial planning, consult a trusted tax professional today. Start asking questions, conduct your own research, find answers from those who have the knowledge and those who analyze. Once you find the best advisor, you’ll surely be able to take full advantage of the opportunities while avoiding failure.
