What will the new tax reform bill mean for your company?
With the passage of the new tax reform bill, there are about as many questions as answers in the media. But what will the new law mean for your small business?
Here's a quick glance at the high points:
Instead of having to depreciate the value of equipment over a long period of time, a business can now immediately deduct the full value of the machinery. If you're in an industry where machinery regularly becomes obsolete before it's completely depreciated, this means you're able to replace it and deduct the new machinery's value at the time of purchase instead of having to hang onto it to fully benefit from depreciation.
Plan ahead to avoid debt
Though debt interest was previously allowed as a deduction, the new tax law caps your net income deductions as 30% of EBITDA. which will get even tougher as the new laws roll forward. This will probably encourage many companies to only invest in what's needed while still protecting the same companies from getting into trouble with unnecessary debt.
C-Corporations will probably see higher tax savings than partnerships and S-corporations
Pass-through business organizations will be able to deduct 20% of income while c-corps can pass through 21%. Though this initially seems like a very
small difference, when paired with the new lower tax rate on regular income, it combines to nearly 30% savings in tax payments.
Simplified to save time
It's estimated that the average small business owner spends an onerous 160 hours, or nearly four work weeks, meeting with accountants, undertaking financial planning, gathering receipts or other expense documentation and similar issues. The new tax code has been drastically simplified by increasing standard deductions and removing a significant number of tax deductions that tended to complicate the tax code. Imagine what you could do with your business with several additional weeks.
Though there are some drawbacks to the new tax laws, understanding how the new law will work will help you take advantage of the benefits. If you need help coming up with a solid tax strategy for your company with the new bill involved, please feel free to contact the experienced professionals at AccountRely today to get started. We'd be happy to help you navigate the change in tax laws.