Tackling The Tax Plan - Just Qount It

To be a news consumer in 2018 means waking up every morning feeling like your head is in a blender. There’s a tsunami of headlines every day which in any normal presidential administration would create news cycles that lasted for weeks. Under this administration, those headlines are gone the following day, replaced by a new wave of information. 

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It comes and goes, and it seems like things we should remember for the long haul disappear quickly. It’s dizzying. But those things that come and go matter, and have real-world impacts on you, on us and on everyone in the country. 

Which brings us to one of those news tsunamis that made big headlines at the time but has since dissipated in the public consciousness: tax reform.

It was just a few months ago that after a protracted battle between the two parties in Washington, Speaker of the House Paul Ryan banged his gavel to enact a massive tax reform bill that has implications for everyone from the small business owner to the billionaire CEOs on Wall Street. 

At Qount, we know that many business owners dread tax season at the best of times, never mind when it’s time to learn a whole new system. Your passion and talent in a particular area are why you got into the business, not to pay taxes. So, if the prospect of reading the 274 pages that comprise the Tax Cuts and Jobs Act (TCJA) doesn’t strike you as relaxing bedtime reading, our blog can help you understand some of the most important takeaways from the bill.

While this blog is here to offer tips and advice, we recommend gaining a more thorough understanding of the laws and how they affect your business, an endeavor our experts will be happy to help you with. 

 

Pass-Through Entities

During the course of the tax reform process, there was a lot said about pass-through entities, companies structured in such a way to eliminate double taxation among its owners. Examples include sole proprietors, LLCs and S corporations. 

Rather than pay income taxes at the corporate level, the owners are taxed individually instead, lowering their exposure to the tax code. To understand what it means, this article breaks it down:

“When a C corporation earns income, it’s charged corporate income tax. Then, when the owner or owners of that C corporation are paid by the corporation, they’re charged on their personal income. That’s why it’s sometimes said that C corporation owners are ‘taxed twice’.

With a pass-through entity, on the other hand, the income of the company ‘passes through’ to the owner or owners. They report the company’s income on their individual tax returns, and then pay income tax on it. They’re only ‘taxed once.’”

Under the new plan, pass-through entities can get a deduction of up to 20%, with the exception of Specialized Service Businesses, which could include lawyers, consultants, healthcare providers, etc. There are income thresholds where the deduction becomes inapplicable, and that’s where it’s important to have Qount on board to understand all the details and elements that come with the pass-through entities. 

 

C Corporation Gains

Pass-through entities aren’t the only segment of the business world to see big changes under the tax plan. C corporations, which are companies with stockholders and investors, also see big changes under the new plan. 

Most C corporations will see their tax rate cut – where before it could range from 15-35%, there will now be a flat rate of 21%. There could now be as much as a 14% reduction in a company’s tax bill, which is certain to have a big impact on a number of business owners. So much so, there is lots of speculation that the new laws could mean that many business owners who previously registered as LLCs or S corporations may be incentivized to remain in the C corporation category. 

If you’re starting a business and deciding how to register the company or wondering if your current business is best positioned under the news laws, it’s important to review the laws and make an educated decision on how to best position yourself. The experts at Qount can review your company’s exposure under the tax plan and offer advice on the best way to proceed.

 

Changes to Deductions

Supporters of the bill point to a number of areas that will help small businesses, and as this article from PBS notes, there are tangible benefits in the immediate future for small businesses: 

“More broadly, three main changes to the tax law will likely help small businesses, said Brad Close, a senior vice president for public policy at the National Federation of Independent Businesses (NFIB), an association which advocates for small businesses: lower individual tax rates, an additional 20 percent deduction for companies filing as pass-through entities, and an expansion of Section 179 filing, which allows for expensing of business-related equipment.”

‘Small businesses are going to see more savings and more money in their pockets,’ Close said.”

“More money in their pockets” is music to a business owner’s ears. But there are also changes that could harm small business. The TCJA eliminated many deductions that have been beneficial to small business owners, including travel costs, meals, client entertainment events and the fees associated with joining professional organizations. If you’re a business owner who has enjoyed 18 holes of golf with a client and then written it off afterward, that’s no longer an option. So as a business owner, you have to be wary of those changes because you could be out of pocket. 

 

Equipped to Buy Equipment?

For many business owners, purchasing new equipment is one of the biggest expenses they might have in a given year. Whether it’s a company car, a tractor for the farm or kitchen equipment for a restaurant, those can be a huge burden on a business, and the tax write-off can be a major element for those businesses. 

Under the old laws, businesses had to distribute out the write-off over a period of a couple of years, but under the TCJA, they can write off a larger portion up front. There’s a good breakdown of what this means over at this informative article

“These changes are part of a tax-saving tool called bonus depreciation. It sounds more complicated than it is: Basically when your business buys a new piece of equipment, you typically can write it off a little at a time each tax season. This is a new tax deduction that lets you write off the entire cost of that equipment purchase for the year you bought it.  This way, you can spread out the cost of an asset you purchase and use for business over a number of years (like a car) until you either recover the cost of the asset or stop using it.

Bonus depreciation used to only cover new equipment purchases—but under Trump’s tax plan, it’ll cover all equipment that’s still in use. Previously, businesses were only able to deduct up to $510,000 in equipment purchases. Under the new tax plan, business owners can deduct up to $1 million in equipment purchases. If you’re thinking, That’s a big difference! well, yes, it is.”

Basically, instead of small portions over several years, you can take the entire writeoff all at once. 

At Qount, we know this is all a lot to digest and isn’t necessarily your forte. That’s where we come in. We devour tax codes the way other people consume tacos. Our goal is to best position your company within the confines of the laws to maximize your return or minimize your bill.

If you’re a business owner looking to work your way through the new tax plan, the experts and software at Qount can put your mind at ease. Tax season is still many months away but getting an early jump will reduce your stress and anxiety as the deadline nears. Contact Qount today and we’ll get you on the right track. 

Nicholas Miller