In addition to retaining most of the Schedule C deductions many small businesses rely on for eligible expenses, the Tax Cuts and Jobs Act of 2017 added two new provisions. The first change favors businesses that invest in equipment, allowing full expensing for five years and increasing the Section 179 small-business expensing cap to $1 million from $500,000.
The second is a 20% blanket reduction of taxable business income for most sole proprietors, S-corporations, LLCs and partnerships. While not all small business owners will benefit from this reduction (an exception was made for service-based businesses, such as doctors and lawyers, earning more than $315,000 a year), many business owners will realize substantial benefits over the next few years. However, unlike the corporate tax cut, which is permanent, the pass-through deduction was included as an individual income tax provision, which means that it expires at the end of 2025, along with the other individual income tax reductions.
Where you live will also factor into how business owners fare under the new tax laws. Those in lower tax states may benefit from the combination of reduced business income and lower individual tax rates, while those in higher tax states who itemize deductions may realize fewer benefits due to the new caps on state and local taxes and mortgage interest.
To determine how recent tax law changes may impact your business and personal income, and your overall financial strategy, please schedule a consultation with us by calling your nearest Synergy office.