With the new 20% deductions in effect this year for taxable small business income, pass-through businesses have a great chance to take advantage of both the booming economy and lower tax expenses. This new and long-awaited relief from Washington DC offers small businesses prime opportunities for less risky and more successful expansions. Deductions will play the major role for New York City’s small businesses looking to save in 2018 under the new tax plan. Marital and family status will also play a big role in how pass-through small businesses will fare under the new tax system. Just like always, small business taxes can still be confusing, especially when new variables are introduced into the mix. This may sound like a new headache rather than a new benefit for some, but make no mistake! – With the right tax knowledge and a confident but cautious perspective on the nation’s economic future, a small business can win big under the new plan. Below are some tips on how to fully utilize the new small business tax breaks enacted this year.
Under the old tax rate of 2017, the top-of-the tax bracket C -Corporation filers paid around 50% in corporate taxes, with top-earning Sole-proprietorships and LLC partnerships paying at tax rates of around 40% for some upper-bracket small businesses. Corporate income taxes are now at the rate of 21%, down from 35%. Pass-through small businesses finally get a chance to reduce their income taxes by 20%. So how do small businesses do that?
Sole-proprietorships, LLC partnerships, and some rental real estate owners/filers will receive a 20% blanket reduction on their taxable business income. Small business owners will have to work a little bit harder for their tax breaks than corporations, as most small pass-through businesses will get their tax savings through business deductions.
For Example – A business owner filing as a sole-proprietor in the $200,000 dollar a year income bracket would be able to deduct up to $40,000 dollars on their Schedule C Tax Form (20% of $200,000 = $40,000). This way, the filer would be able to add $160,000 to their adjusted gross income, rather than the original $200,000 in small business income for the year.
Now, unfortunately for service-based small businesses like doctor and lawyer offices which earn over $315,000 a year, the new 20% reduction tax break does not apply to them. These types of high earning service businesses were basically left out in the cold during the main political negotiations on “the Hill” over who was going to benefit the most from the new tax breaks – corporations, small businesses, or the working middle class.
For small businesses in the retail and manufacturing sector, the new allowable tax deductions are geared towards giving them some help with expansions, new hires and raises, and especially new equipment upgrades which hopefully will provide owners with more efficiency, financial stability, and make them more relevant and competitive in the growing modern economy – Especially against encroaching competition on the market from larger corporations.
New tax changes were added to Section 179 as well which double the old expensing cap of $500,000 to $1,000,000. This tax change makes 2018 a great time for businesses that have wanted to expand in the past, but the economy seemed too bleak at the time to justify the risk. Now, Section 179 allows businesses to deduct the full purchase price of equipment from gross income – A much deserved and long-awaited break for a lot of NYC small business owners.
One great way to invest your business’s tax savings this year is to upgrade your security gates, garage doors, parking gates, plus entry/exits and side gates – Economically providing your New York City business with the maximum amount of security while still upholding absolute convenience and reliability. Get in touch with New York Gates today at 718-614-0616, they’re the top professional gate and garage door manufacturers, installers, and repair specialists in the five boroughs. E-mail them at [email protected] with your project specifics and NYG will quickly reply back to you with detailed answers to your questions.
Overall, there were actually very few other changes made to the existing Schedule C tax filing system. This is why the most successful way of using the new small business tax breaks are going to be by utilizing automatic deductions in order to invest for the future. Then, make sure to take total advantage of full expensing (expense the full value of your capital expenditures) on your upgrades and equipment purchases for the next five years, which the new law allows for.
Another way for small business owners to save on their taxes in 2018 is to also take advantage of their reductions in individual income on their state taxes. This, of course, will depend on the state tax rate in which the business owner is filing under.
Highly taxed states like New York and New Jersey will take a harder tax hit than lower taxed states like Florida, Nevada, and Wyoming. Reduced declared business income + lower individual state tax rates = lower overall tax bill. This is an important point to look at for small business owners who also have other small businesses located in another state besides New York.
When the House and the Senate rallied their tax bills for last year’s big GOP win, there were many different factions, ideologies, and angles being interjected from all sides. Lawmakers eventually found common ground which also included some extra help for small business owners who have been feeling left behind by both their political leaders and the recovering economy. Now, here’s the bad news! With the new 20% deduction for small business owners filing Schedule C, Sole-proprietorships, and LLC Partnerships, there’s also many conditions, limitations, and phase-outs in this tax legislation. It must also be recognized that the added pass-through deduction for small businesses was passed as a temporary individual income tax reduction that ends in 2025. This should by no means be taken as a prediction of future small business financial doom and gloom – in fact, the opposite is true. This article is a call to action so-to-speak for small business owners everywhere to take full advantage over the next seven years of all of the new tax breaks – successfully strengthening their financial futures beyond 2025.