New Year, New Tax Code. Now What?

Taxes may not be the most exciting subject, but as a business owner, it’s essential to stay up to date with the most recent changes to the tax code and learn how they affect your business. In 2017, the Tax Cuts and Jobs Act was passed, which brought about significant changes to the tax code. These changes can significantly impact your business and its bottom line. This article will explore the new tax codes implemented and highlight how they may affect your business going forward.

The Tax Cuts and Jobs Act (TCJA), passed in 2017, brought about significant changes to the tax code. One of the main changes was the reduction in the corporate tax rate from 35% to 21%. This reduction in the corporate tax rate was meant to stimulate business growth and investments while providing more money for businesses to use for research, development, hiring, and expansion.

Another significant change introduced in the TCJA is the new deduction for pass-through entities, such as sole proprietorships, partnerships, and limited liability companies (LLCs). Entities with pass-through taxation aren’t doubly taxed; instead, they report company profits as their personal income on their individual tax returns. This new deduction allows owners of pass-through entities to deduct up to 20% of their qualified business income on their individual tax returns, which can lead to significant tax savings for them.

The Tax Cuts and Jobs Act also eliminated or reduced many business deductions. For instance, entertainment expenses can no longer be deducted from business tax returns. This means businesses may need to adjust their budgets and spending habits to account for such changes so it doesn’t negatively impact their bottom line.

One of the most significant and controversial changes in the new tax code is the state and local tax (SALT) deduction limitation. This change limits the state and local taxes companies can deduct on their federal tax returns to $10,000. This change may significantly impact businesses in states with higher tax rates, making it more challenging to attract and retain new talent.

Overall, the new tax code has many benefits and drawbacks for businesses. While the reduction in the corporate tax rate and the new deduction for pass-through entities may lead to significant tax savings, the flip side of eliminating or reducing business deductions and the limitation on the SALT deduction may result in increased business costs. Businesses need to work with their accountants and tax professionals to understand how these changes affect them and make the necessary adjustments to their budgets and spending habits. This will give them the opportunity to continue to turn a profit and flourish.

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