So many businesses take taxes into account when planning their short- and long-term strategy on everything from employment opportunities and hiring to procurement to growth management. There are truly few businesses that do not consider tax benefits and potential tax hiccups when they sit down and plan their strategy for the next year or more. The Tax Cuts and Jobs Act had a stimulating impact on the American economy and helped businesses in a variety of ways, paving the way for further growth, hiring, and other crucial steps some may have otherwise held back on.
The Tax Cuts and Jobs Act
Here are just a few things that the Tax Cuts and Jobs Act does which impacts your business:
- Single corporate tax rate: In previous years, the corporate tax rate ranged from 15% to 35% depending on a variety of factors, making doing business in the United States more and more expensive depending on a business’ particular situation and strategy. The Tax Cuts and Jobs Act instituted a flat 21% corporate tax rate, so businesses don’t have to go through mental gymnastics to get to their appropriate tax rate.
- New pass-through deductions: As most businesses do not operate as corporations, many business owners receive income through what is called “pass-through” income due to the fact some businesses like LLCs, sole proprietorships, partnerships, and S corps do not pay taxes on their own. Previously, this meant that business owners might have been paying higher taxes on income than they should. The Tax Cuts and Jobs Act created a 20% deduction in income received this way so that in actuality a business owner ends up paying tax on around 80% of the income and their personal tax rate potentially drops from 37% to 29.5%.
- Bonus depreciation: In the case of bonus depreciation, the long-term depreciation cost can be deducted in a single year instead of over a long period of years thus yielding businesses more immediate tax savings which can be re-invested in the business. The ability to deduct 100% of the cost of depreciation is only in effect until 2023, then it is reduced by 20% every year thereafter bottoming out at 20% for items placed in service after December 31, 2025.
- Automobile depreciation: The Tax Cuts and Jobs Act modified and increased automobile depreciation limits to $10,000 for the first year of use, $16,000 for the second year, $9,600 for the third year and $5,760 for every year thereafter. For those who use one or more automobiles in the course of business, this is a crucial deduction.
- Limits on Business Interest: For businesses with less than $25 million of gross receipts, business interest deduction limits do not apply but those with more than $25 million in gross receipts are not allowed to deduct interest that amounts to more than 30% of income that is taxable.
Contact the Professionals at MKS&H Today
No matter your questions about how the Tax Cuts and Jobs Act impacts your business, MKS&H can help you enjoy the benefits of every tax benefit to you. Our tax professionals have the experience and knowledge to help you navigate the new tax regulations in your business. For all of your business tax needs, contact us today!