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The New US Tax Reform: Breaking it Down for Your Small Business
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Recorded LIVE, tax experts Will and Kenji share how the new tax reform affects small businesses.
We answered top questions from viewers. You can find the time stamps below:
Q: Overall, how does the tax reform affect small businesses? [1:05]
A: You can expect to save money on your taxes, which means it's a great time to invest in the business, whether that's hiring more employees, buying more equipment, or expanding.
Q: 95% of small businesses are pass-through entities, and they experience big tax cuts. First, what is a pass-through entity? [3:33]
A: A pass-through entity is either sole-proprietorships or LLCs. It's a business structure in which the income from the business passes through to an individual's tax return.
Q: What tax cuts do pass-through entities get? [4:32]
A: You get a 20% deduction for the net profit of the business.
Q: Does that deduction apply to every pass-through entity? Are there limitations? [5:14]
A: There are limits: Not everyone can get the 20% deduction. Compensation is an example: If your taxable income is over $157,000, then that tax deduction will be phased out. Some industries also have limitations, like consulting services or law practice.
Q: Should small businesses switch to a C corp to capitalize on the massive tax cut for C corps? [8:00]
A: No, not necessarily. The pass-through entities also enjoy great tax benefits. Also, C corps are often called "double taxation entity" for a reason. Your entity is set up not only for tax purposes but for legal purposes. Also, if you change to a C corp, it's a one-way street: it's hard to change it back. So, definitely consult a tax advisor for your specific situation.
Q: Any changes to the meals and entertainment deductions? I heard they are going away. [10:23]
A: Yes! Meals and entertainment are being reduced from 100% deductible to 50% deductible.
Q: How about other important deductions, like commuter benefits? [12:43]
A: Commuter benefits are now not tax deductible at all for employers. Pro Tip! As a workaround, it might be worth trying to negotiate with your landlord if you can incorporate parking into your rent, which is tax deductible.
Q: Do these tax changes affect our 2017 tax returns, or does it just apply to 2018? [15:50]
A: Nope, it only pertains to 2018 moving forward.
Q: What is Section 179, and what are the changes to it? [17:45]
A: Section 179 allows you to expense equipment purchased for the business. With the new tax reform, it has been broadened and you can deduct even more -- from $500,000 to $1,000,000.
Q: How can I deduct unreimbursed business expenses without itemizing? [19:21]
A: It depends on the kind of pass-through entity you have. Will goes into more of that here.
Q: Any changes to business expenses that we should know about? [20:35]
Kenji: There are going to be some reductions to the interest expense. This will impact real estate the most. Listen to learn more on that!
Will: There are changes to the standard deductions and the personal exemption on your personal tax return. In fact, that entirely goes away with the new reform. There are some pros and cons with that change.
Q: What should people expect from their CPA? [23:55]
A: They should be proactive and reaching out to you to provide more guidance amidst the changes. Also, share your long-term plans with your CPA because you can be growing your business during this reform.
Q: Are S corps still the best for small businesses?
A: It's a tax-saving status, so for many businesses, this is still a beneficial path to take.
Q: What are the main takeaways from the reform? [28:17]
A:
- Are there creative, legal, compliant ways to capitalize on the reform changes?
- How can you grow your business?
- Work with your CPA to create a growth path for your business.
---------------------------------
About our guests:
Kenji Kuramoto is the Founder and CEO of Acuity, which builds and maintains financial functions for entrepreneurs and small business.
This Live Session is brought to you by Gusto. Gusto serves over 40,000 small businesses across the US with a refreshingly easy payroll, benefits, and HR solution.
--- For more small business answers, visit us at:
--- If it suits your fancy, follow us on Twitter @GustoHQ
We answered top questions from viewers. You can find the time stamps below:
Q: Overall, how does the tax reform affect small businesses? [1:05]
A: You can expect to save money on your taxes, which means it's a great time to invest in the business, whether that's hiring more employees, buying more equipment, or expanding.
Q: 95% of small businesses are pass-through entities, and they experience big tax cuts. First, what is a pass-through entity? [3:33]
A: A pass-through entity is either sole-proprietorships or LLCs. It's a business structure in which the income from the business passes through to an individual's tax return.
Q: What tax cuts do pass-through entities get? [4:32]
A: You get a 20% deduction for the net profit of the business.
Q: Does that deduction apply to every pass-through entity? Are there limitations? [5:14]
A: There are limits: Not everyone can get the 20% deduction. Compensation is an example: If your taxable income is over $157,000, then that tax deduction will be phased out. Some industries also have limitations, like consulting services or law practice.
Q: Should small businesses switch to a C corp to capitalize on the massive tax cut for C corps? [8:00]
A: No, not necessarily. The pass-through entities also enjoy great tax benefits. Also, C corps are often called "double taxation entity" for a reason. Your entity is set up not only for tax purposes but for legal purposes. Also, if you change to a C corp, it's a one-way street: it's hard to change it back. So, definitely consult a tax advisor for your specific situation.
Q: Any changes to the meals and entertainment deductions? I heard they are going away. [10:23]
A: Yes! Meals and entertainment are being reduced from 100% deductible to 50% deductible.
Q: How about other important deductions, like commuter benefits? [12:43]
A: Commuter benefits are now not tax deductible at all for employers. Pro Tip! As a workaround, it might be worth trying to negotiate with your landlord if you can incorporate parking into your rent, which is tax deductible.
Q: Do these tax changes affect our 2017 tax returns, or does it just apply to 2018? [15:50]
A: Nope, it only pertains to 2018 moving forward.
Q: What is Section 179, and what are the changes to it? [17:45]
A: Section 179 allows you to expense equipment purchased for the business. With the new tax reform, it has been broadened and you can deduct even more -- from $500,000 to $1,000,000.
Q: How can I deduct unreimbursed business expenses without itemizing? [19:21]
A: It depends on the kind of pass-through entity you have. Will goes into more of that here.
Q: Any changes to business expenses that we should know about? [20:35]
Kenji: There are going to be some reductions to the interest expense. This will impact real estate the most. Listen to learn more on that!
Will: There are changes to the standard deductions and the personal exemption on your personal tax return. In fact, that entirely goes away with the new reform. There are some pros and cons with that change.
Q: What should people expect from their CPA? [23:55]
A: They should be proactive and reaching out to you to provide more guidance amidst the changes. Also, share your long-term plans with your CPA because you can be growing your business during this reform.
Q: Are S corps still the best for small businesses?
A: It's a tax-saving status, so for many businesses, this is still a beneficial path to take.
Q: What are the main takeaways from the reform? [28:17]
A:
- Are there creative, legal, compliant ways to capitalize on the reform changes?
- How can you grow your business?
- Work with your CPA to create a growth path for your business.
---------------------------------
About our guests:
Kenji Kuramoto is the Founder and CEO of Acuity, which builds and maintains financial functions for entrepreneurs and small business.
This Live Session is brought to you by Gusto. Gusto serves over 40,000 small businesses across the US with a refreshingly easy payroll, benefits, and HR solution.
--- For more small business answers, visit us at:
--- If it suits your fancy, follow us on Twitter @GustoHQ
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