BY THOMAS GRECH
CEO & PRESIDENT
QUEENS CHAMBER OF COMMERCE
Both houses of Congress passed a final version of the Tax Cuts and Jobs Act on December 20. The act was based on the Trump administration’s plans presented back on September 27. Here is a summary and analysis of how it will affect your small business.
In sum, the new tax plan will cut income tax rates and double the standard deduction while reducing itemized deductions and changing child, elder care and business taxes. The final plan cuts the corporate tax rate from 35 to 21 percent in 2018, and temporarily lowers the income tax at nearly all levels.
For example, singles with an annual income between $9,525 and $38,700 will see a drop from 15 to 12 percent, and singles with an annual income of over $500,000 will see a drop from 39.6 to 37 percent.
The only group that will not see lower income taxes under this plan would be the lowest-earning bracket of under $9,525 per year for single taxpayers and under $19,050 for those filing jointly. Their income tax rate will stay at 10 percent.
So, what does this mean for small business owners? It means the plan allows corporations to deduct state and local taxes and doubles estate tax exemptions, and helps the 1 percent who pay them while contributing about $17 billion in taxes.
The Alternative Minimum Tax will remain, but will now raise the income bracket for those affected to those with incomes over $70,300 (as single filers) or $109,400 (as married/joint filers).
The plan will benefit small business owners by encouraging investments and allowing businesses to deduct the cost of depreciable assets in one year versus amortizing them over several years.
The biggest issue facing small businesses involves the fact that most of them get taxed differently from big corporations. A good percentage of small businesses are set up as what are known as “pass-through entities,” such as partnerships, limited liability companies, or sole proprietorships.
For most of those entities, corporate tax rates don’t apply, and so the proposed reduction in the corporate tax rate won’t give them any relief.
The Queens Chamber and our subject matter expert members are here to assist you in navigating the new tax plan, so if you have specific questions, please contact us.