What Does Tax Reform Mean for Your Smallbiz

The President (Donald Trump) outlined his plan for tax reform, but does it mean for your small business?

The tax plan calls for changes to the individual tax rate, the business tax rate, the Estate tax (or Death Tax), and the Repatriation tax.  All of these taxes affect small businesses.

Personal Income Tax:

-Reduce Tax Rates & Brackets:

Under current law, personal taxable income is subject to seven tax brackets (10%, 15%, 25%, 28%, 33%, 35% & 39.6%).  The President's plan aims to consolidate the current seven tax brackets into three brackets of 12%, 25% and 35%.  

-Double The “Standard Deduction”:

The Standard Deduction will be doubled.  The Standard Deduction for individuals will go from $6,000 to $12,000 and for a married couples from $12,000 to $24,000. 

-No More Itemization:

Reduction in the amount of exemptions, deductions and credits means that there will no more itemisation.  

-The AMT Repeal:

Individuals will also have less work to do when the Alternative Minimum Tax (AMT) is repealed.  The existing individual AMT requires taxpayers to do their taxes twice.

-Estate Tax Repeal:

Repeals the estate tax, also known as the “Death Tax,” which applies to the transfer of property of a deceased person.  e framework repeals the death tax and the generation-skipping transfer tax.

Business Income Tax:

-Lower Tax Rate:

The plan also calls for the business tax rate to be lowered from 35 percent to 15 percent.  This also means that the business tax rate will be reduced from 6 brackets (15%, 25%, 34%, 35%, 38% & 39%) to one.

-Limit Top Rate: 

However, sole proprietorships, partnerships and S corporations to will not pay taxes above 25%. 

-Eliminate TheAlternative Minimum Tax (AMT):

The AMT will be eliminated.  This will reduce the tax filing burden on corporations.

-Remove Double Taxation:

Removal of the Double Taxation is also being considered. 

-Immedidate Expensing;

Businesses will be able to immediately write off the investments in depreciable assets other than structures made after September 27, 2017, for at least five years.

-Limit Interest Expense:

The deduction for net interest expense incurred by C corporations will be partially limited.

-Remove Other Deductions & Credits:

Domestic production deduction will be eliminated.

-Repatriation:

It will replace the existing, outdated worldwide tax system with a 100% exemption for dividends from foreign subsidiaries (in which the U.S. parent owns at least a 10% stake). 

-Territorial Tax

Reduce the rate on profits earned by U.S. multinational corporations.  

-Remove ACA Tax:

Repeal the 3.8 percent ACA tax “that hits small businesses and investment income.”

The combined reduction in personal and business income taxes as well as the simplification of filing the tax will be a significant boost to small businesses. 

Sources:
Treasury: Unified Framework for Fixing Our Broken Tax System

By Bill Williams