Tax Reform and Small Businesses

Jan 15, 2024

As a small business owner, it's crucial to stay informed about changes in tax laws and regulations that could affect your bottom line. The recent tax reform has brought about significant changes, and understanding its impact is essential to ensure compliance and make informed financial decisions.  Here are a few tips on how to navigate them!

Lower Corporate Tax Rate

One of the most significant changes in tax reform is the reduction in the corporate tax rate. The new law lowers the rate from 35% to 21%, providing small businesses with an opportunity to retain more of their profits. This reduction can free up capital that can be reinvested in the business, used for expansion, or hiring new employees.

Qualified Business Income Deduction

The introduction of the Qualified Business Income (QBI) deduction is another crucial aspect of tax reform for small businesses. This deduction allows eligible pass-through entities, such as sole proprietorships, partnerships, and S corporations, to deduct up to 20% of their qualified business income. It's important to consult with a tax professional to determine whether your business qualifies for this deduction and to maximize its benefits.

Depreciation Rules

Under the new tax law, small businesses can take advantage of increased expensing limits for certain business assets. The Section 179 expensing limit has been expanded to $1 million, and the bonus depreciation has been increased to 100% for qualified property. These changes provide businesses with the opportunity to accelerate their deductions and reduce their taxable income.

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Meal and Entertainment Expenses

Tax reform has also brought changes to the deductibility of meal and entertainment expenses. Entertainment expenses are no longer deductible, while the deduction for business meals has been limited to 50%. It's important for small business owners to keep detailed records of these expenses and consult with a tax professional to ensure compliance with the new rules.

State and Local Tax Deductions

One area of tax reform that has raised concerns for small businesses is the limitation on state and local tax (SALT) deductions. The new law imposes a $10,000 cap on the deduction for state and local income taxes, property taxes, and sales taxes. This change may have a significant impact on businesses operating in high-tax states. It's essential to review your tax strategy and consider potential adjustments to mitigate the impact of this limitation.

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Seek Professional Guidance

Given the complexity of the new tax laws, it's highly recommended for small business owners to seek professional guidance from a qualified tax advisor or accountant. They can help you navigate the changes, identify potential tax savings opportunities, and ensure compliance with the new regulations.

Stay Informed and Plan Ahead

Staying informed about ongoing changes in tax laws and regulations is crucial for small business owners. Regularly review updates from the IRS and other trusted sources to stay ahead of any changes that may impact your business. Additionally, consider proactive tax planning throughout the year to optimize your tax position and minimize any surprises when it comes time to file your tax return.

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Tax reform has brought significant changes that impact small businesses. Understanding these changes and their implications is vital for navigating the new tax landscape successfully. By staying informed, seeking professional guidance, and proactively planning, small business owners can make the most of the opportunities presented by tax reform and ensure compliance with the new regulations.

Reach out to HTM today to set up a 30-minute consultation!