We know that you work hard for your money and often a tax refund may be the biggest check you get all year, so it’s important to understand how new tax reform legislation may affect your tax refund next year.
The new tax law signed into law on December 22, 2017 is a doozy. For example, it is the largest piece of tax reform legislation in 30 years. For most people, these tax changes impact tax year 2018 (the taxes you file in 2019) and not tax year 2017 returns. Overall, the changes associated with the new tax law may lower taxes for individuals and small businesses.
As a small business, you do need to understand the Trump tax reform that came into effect on January 1, 2018 under the Tax Cuts and Jobs Acts.
This legislation changes how much tax your business pays, and removes a few tax deductions too.
In print, the Tax Cuts and Jobs Acts (TCJA) runs 274 pages, but let’s focus on small and growing businesses such as your own.
There is a new 20 percent small business deduction. The goal of this recent change is to help small companies compete with larger — and even international– organizations.
Only entities that make less than $315,000 a year can take advantage of this deduction, which is also meant to prevent wealthy firms from gaining a competitive edge. Almost two-thirds of small businesses in the United States fit this profile, which makes the benefit significant.
In terms of new or expanded tax breaks, the TCJA allows for small businesses to take some advantages, such as the doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023 and a new tax credit for employer-paid family and medical leave.
The Work Opportunity Tax Credit is also part of the TCJA meant to be a hiring incentive for small and medium-sized businesses. Firms that hire specific types of employees, such as veterans, individuals receiving federal support and the long-term unemployed can take advantage of this provision. There are also state hiring incentives which can add to the benefits.
But please be advised….the final result of the TCJA will vary from state to state. Because many states use federal tax code as a sort-of DNA to their own income tax systems (called conformity), some (but not all) of the TCJA’s changes will become state law unless states pass new legislation.
Confused yet? This is a case where the most can be made of seizing the opportunities available.
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