The situation becomes more complicated when you consider that you need to adjust to new tax regulations each year. The recently passed tax bill makes a number of changes that could impact how much you owe in business taxes, the credits you can take and the deductions you need to account for.
Higher Equipment Expensing Limits
The equipment needed to operate your small business may make up a large portion of your budget. You now have the option to immediately expense equipment and property up to $500,000 annually, rather than spreading this out over several years. You lose out on this benefit after your equipment exceeds $2 million, but it’s an excellent opportunity to get innovative equipment rolled out that helps fuel your growth.
Higher Depreciation Cap for Luxury and Utility Vehicles
Luxury and utility vehicles are getting a boost with this tax bill. You can deduct close to 50 percent of the cost spread over the next five years for vehicles costing $47,000 and over.
This change makes these vehicles more affordable for small businesses, and allows you to purchase big tow trucks, cargo vans and specialty vehicles. When you have easier access to creating a commercial fleet, you have more opportunities to expand your business or move into other markets.
Flat 21 Percent Tax Rate for Corporations
The corporation tax rate gets set at a flat 21 percent, rather than the previous 15 to 39 percent progressive tax. Corporations at the lower end of the scale have to pay more with this change if they were paying 15 percent. If you have a higher earning corporation with more than $50,000 in taxable income, then you’re going to get a big break in 2018. This change applies to C and S corporations.
Of course, even if you’re on the lower end of corporations when it comes to revenue, other changes could make this an overall good tweak for your needs. If the number seems much higher than it should be, ensure that you look at the other ways that this bill has altered the 2017 tax code so you’re not missing an important consideration during the filing process.
Doubled Standard Deduction
Are you a sole proprietorship, partnership or limited liability corporation that has income pass through to your personal income taxes? You don’t pay the 21 percent corporation tax rate, but the applicable personal income tax rate. The new tax bill doubles the standard deduction amount so you can claim $12,700 as a single filer or $24,000 as a married filing together filer. This increase can help you reduce your personal tax liability, which may be higher than you would expect if you’re not used to small business taxes.
The tax code is complicated, especially when you get into the parts that impact small businesses. With the business-friendly changes to the tax code in 2018, you could end up paying less than previous years. Determining whether that’s the case depends on understanding the changes and how they apply to your company’s tax situation.
If you run into a lot of problems and you don’t have your own accounting personnel or team, consider working with a CPA that specializes in small business taxes. You don’t want to risk missing an important deduction or doing the math incorrectly due to the complex requirements for tax filing.