Small business owners are among those dissecting the details following President Trump’s unveiling of a tax reform proposal in late April. At the heart of the plan are substantial tax reductions for businesses of all sizes. What does the tax plan mean for millions of small businesses which employ about half of all non-public sector workers in America?
The new tax code would affect a number of factors, as small business owners are responsible for a laundry list of tax assessments. Typically, these include:
- Federal income tax
- State income tax
- Alternative minimum tax
- Affordable Care Act tax
- Business, Professional, Occupational License tax (BPOL Tax)
- Tangible Personal Property tax
- Payroll taxes–Social Security and Medicare
- Payroll taxes–State Unemployment Insurance
- LLC fees
- Sales tax
Tax Reform In The News In 2017
Across the board, tax experts agree that 2017 will bring more focus, debate and action on the subject of tax reform than our domestic agenda has seen for over 30 years, since the Tax Reform Act of 1986. The White House is calling this proposal “one of the biggest tax cuts in American history” for both individual and corporate tax codes, as well as the intersection where small business owners meet both. Clearly, tax reform developments will have wide implications.
Key Elements Of Tax Reform Proposal
Continually changing, highly complicated tax codes can certainly distract from the business of doing your business. To boil it down, four key points of the current tax reform proposal that could affect your bottom line as a small business owner are:
- Lowering corporate tax rates from the current 35 percent to 15 percent
- No introduction of a border adjustment tax on imports
- Territorial tax system to replace worldwide system for businesses
- Reduced income rates paid by businesses known as pass-through entities to 15 percent
Pass-Through Entities And Tax Reform
As tax reform moves through the legislative process, eyes and ears from mom and pop shops to SMEs will be on regulations concerned with pass-through businesses. The current proposal has shareholders for pass-throughs, such as a Sub S Corp or a Limited Liability Company (LLC), continuing to accrue the income of their businesses with one important distinction.
If new tax laws allow this income to be calculated and taxed separately at the proposed lower business rate rather than a higher personal rate, many suggest there would be more working capital for owners to invest back into a business.
There has been much debate over the projected costs of these cuts. But in their current form, the comprehensive tax reforms proposed by the Trump administration would likely benefit small business owners.