If you watch the news, you’ve heard plenty of talk about President Trump’s latest tax proposal. While you may be left with questions like does it benefit the wealthy, are fewer deductions a good thing, or how will it impact my family, if you’re a small business owner, most likely you want to know how it will impact your business’s bottom line.
The Trump administration released its proposal for tax reform in September, and while it’s far from final, the framework does suggest some changes in the taxation of small businesses. If you own a business or you’re thinking of starting one, here are several things you should be aware of.
Lower Corporate Taxes With Little Change for Small Businesses.
Lowering corporate taxes has little influence on the average small business owner because very few of these entities actually pay the corporate tax rate. If your business is an S corporation, an LLC, a partnership, or a sole proprietorship, you instead pay your taxes on a pass-through basis. This means profits (and losses) are passed through your business to be taxed at your personal income tax rate. Consequently, this proposed change will result in no gain for the average small business.
No Lower Taxes for Service Companies.
The Trump tax plan is proposing various tax cuts which would be expensive, and the tax revenue would have to be made up elsewhere. To overcome this problem, experts suggest that service industry companies may not be entitled to the lower corporate tax rate under the new plan.
Speedier Write-Offs for New Equipment.
The new tax proposal states that business owners who invest in new equipment or other costs will be able to immediately write off the costs on their taxes, rather than having them depreciate over time. The specifics on the types of investments included have not been outlined, but this could benefit some small business owners.
Fewer Homeowners in Need of Small Business Services.
In order to make up for lower federal income resulting from the lower corporate taxes, the proposal suggests eliminating the mortgage interest deduction. This deduction currently helps many middle-class Americans buy homes. Without it, there could be a decrease in homeownership, which could also result in lower demand for services from interior decorators, painters, carpenters, landscapers, and realtors.
President Trump and congressional leaders are hoping to finalize a deal by the end of the year; there are only about 20 working legislative days left in the holiday-heavy months remaining in 2017. Democratic senators on the Finance Committee who have met with Trump say the White House has dismissed their concerns that the tax plan would strongly benefit the wealthy and potentially raise taxes on some middle-class families.
Republicans hope to pass the finalized plan through the Senate, where they have a two-vote edge, with a simple majority vote; the plan is expected to receive greater opposition in the House.