Navigating the New Tax Landscape: What Trump's Tax Plan Means for Small Businesses

Unpack the complexities of the Tax Cuts and Jobs Act and discover its impact on small businesses. From corporate tax rate cuts to changes in deductions, learn how this historic tax overhaul could shape your business's future.

Asking the Question

Millions of Americans around the country are asking the same question you’re wondering right now: As a small-business owner, how will the Tax Cut and Jobs Act affect me and my business?

First, some background about the new tax legislation...

On December 20, 2017, the United States Senate and House of Representatives passed a final version of the Tax Cuts and Jobs Act, which was based on the plans the Trump administration presented earlier in the year in September of 2017. President Trump signed the Republican tax cut bill into law on December 22, 2017.

The votes that approved the final version of this bill were groundbreaking, not in the way that the votes were almost a 50/50 split, but because these votes approved the first overhaul of the United States tax code in more than 30 years. (https://www.cnn.com/2017/12/20/politics/house-senate-trump-tax-bill/index.html)

The Joint Committee on Taxation found that individuals who fall within all income groups will see tax cuts in the year 2019, but over time may begin to actually see a tax increase.

Who Will Feel the Effects?

Overall, the tax plan will ease the burden on businesses instead of the individuals who are the income earners who fall within the middle class, but corporations will indeed feel almost giddy. Their corporate tax rate will decrease from 35 percent to 21 percent.

The aggressive $1.51 trillion that will be cut from corporation taxes will help businesses and hopefully get America situated on the right foot to succeed and become a leader again on the world market stage.

Who Really Wins?

But who really wins out with a tax plan such as this? With the buzz certainly focused around “small business,” is this bill as generous to small businesses as it is to the larger corporations?

Honestly? Large, multinational corporations will be the ones coming out on top.

On a Closer Look

Let’s take a closer look and see what other provisions are included within this bill that could be of use for the small business owners across the country who are still feeling hopeful.

As of right now, sole proprietors, partnerships, LLCs and S corporations pay tax on the pass-through income on their individuals tax returns at their marginal rate, which can clock in at a rate as high as 39.6 percent.

The lawmakers decided to tax that pass-through rate at a maximum rate of 25 percent, but the real catch is that with the individual tax brackets becoming more simplified, all taxpayers making less than $260,000 (who are married and filing jointly) will have a maximum rate of 25 percent anyway.

To really reap the benefit, you will need to be making

$300,000, but is that number representative for small businesses scattered across America? We don’t think so.

Rolling in the Dough

The numbers and cutoff margins within the Tax Cut and Jobs Act may make a difference if you’re making over a certain amount of money each year, but for the average coffee shop owner, letterpress store owners, pie restaurant, internet marketer, and local community dentist, these aren’t the individuals who are rolling in the big bucks like $25 million in sales each year.

Sadly, tax deductions that have, in the past, historically helped small business like business interest deduction, Net Operating Loss (NOL), 1031 Like-Kind Exchanges, local lobbying expenses, entertainment expenses, Domestic Production Income Deduction, Employer-Provider Child Care Credit, Rehabilitation credit for historic buildings, Work Opportunity Tax Credit, New Markets Tax Credit, expenditures to provide access to disabled individuals, and credit of FICA and tips for restaurant owners have either been gutted, limited, drastically changed, or repealed entirely within the Tax Cut and Jobs Act.  (https://www.entrepreneur.com/article/304144)

Keep Your Own Business Going Strong

Massive reductions in taxes will be headlining in the corporate spheres, especially for the big guns like Walmart, Amazon, and Microsoft, and hopefully helping them create more jobs and stimulate the economy. Unfortunately, the small business owners around the country should stay committed to keeping business going strong and exploring what aspects of the tax code keep their best interest in mind.

On a final note, as you file your taxes this year for last year’s 2017 return, this information does not yet apply. By this time next year, your tax systems may be similar but the tax code will look, albeit, significantly different.