Under the new Tax Cuts and Jobs Act, the majority of small businesses will likely enjoy a tax decrease. The trick is properly taking advantage of the appropriate deductions, credits, gifting, and donation opportunities.
How Will Small Businesses Save Money Under The New Tax Code?
The 20 percent pass-through deduction and the expansion of Section 179, which deals with business equipment expensing, will allow many small businesses to deduct larger amounts from their taxable incomes, lowering net profits and by extension their effective tax rates.
Expanding Section 179 may be a bigger boon for some companies than the 20 percent pass-through option. Previously, small businesses could only deduct up to $500,000 for new equipment purchases. Representatives increased that figure to $1 million.
We should also note that there is still some confusion as to who qualifies for the pass-through deduction. The IRS recently held a public hearing on the matter and is expected to publish clarifications by the end of the year.
Potential Small Business Pitfall Under The New Tax Code
The new tax code also contains potential pitfalls for some small businesses. For example: Even though lawmakers increased equipment allowances, they eliminated other deductions, like association membership dues and travel expenses.
All in all, legislators hope that the new tax code will allow small business owners to better prepare for slower periods and downturns.
Understanding How The New Tax Code Will Affect Your Small Business
Brad Close of the National Federation of Independent Businesses (NFIB) advised small business owners to seek out tax lawyers for consultation, explaining:
“There are so many moving parts of the tax law that impact a small business as a pass-through that they’re not going to know until the end of the year. There’s a lot that is too much right now for the little guy to figure out.”
Connect With A Small Business Tax Lawyer In Illinois
Are you a small business owner in Illinois who is trying to make sense of the new tax code? If so, we’re here to guide the way. Gordon Law Group helps small businesses with all aspects of their taxes — from the mundane to complex international matters.
Get in touch today! Let’s talk about how we can save you money on taxes or fix a current tax debt problem.