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How Will the Tax Cuts and Job Act Affect Small Business Owners?

As a small business owner, taxes are always a concern. With the recent passage of the Tax Cuts and Jobs Act, many small business owners are wondering how their tax benefits and liabilities will change during 2018 and the years that follow. Below are some of the ways in which this bill could impact your small business.

  1. Payroll withholding requirements will change.
    If your small business has employees, you may need to change the amount of money you withhold from your employees’ checks for tax purposes. The new tax bill eliminated personal exemptions and doubled the standard deduction, which changed withholding recommendations. Because the change takes effect in 2018, it is important to ask your employees to complete new copies of Form W-4 as soon as possible.
  2. You may not need to itemize your deductions anymore.
    Prior to the new tax bill, many small business owners itemized their deductions in order to reduce their tax liability. After this bill, however, the standard deduction will double. For many business owners, this means that itemizing will no longer be beneficial. For small business owners who still want to itemize, some deductions will be different or no longer available.
  3. Tax rates have changed.
    Depending on the type of business you operate, your tax rate may change in 2018 and beyond. For example, if you own a C corporation, your tax rate will drop considerably. However, if your business is structured as a sole proprietorship, S corporation or LLC, this change won’t apply to you. Even so, individual tax rates have changed too, so you may still see some changes to your tax liability because of the bill.
  4. You may be able to deduct some of your business income.
    If you receive income through a pass-through entity, such as a sole proprietorship, S corporation or LLC, you may be eligible for a new deduction because of the Tax Cuts and Jobs Act. The bill creates a deduction that allows business owners to deduct 20 percent of their business income, which means your tax liability may be reduced.
  5. Bonus depreciation will change.
    Bonus depreciation allows business owners to deduct a sizable portion of a new asset’s cost in the year it was purchased. Before this tax reform was passed, bonus depreciation was capped at 50 percent. However, the new tax law will allow business owners to deduct 100 percent. This limit increase will remain in place through 2022.

These are just a few of the changes small business owners will notice because of the Tax Cuts and Jobs Act.

We encourage you to contact us with any questions.

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