The recent passage of the Republican tax bill could lead to big changes for small businesses. But some entrepreneurs are still unsure exactly which parts of the bill might have the biggest impact. So a financial professional could potentially shed some light on the specifics.
Ryan Himmel is a CPA and head of financial partnerships in the Americas for Xero. Himmel recently spoke with me as part of our exclusive Smart Hustle Report. During the conversation, he shared some insights about the Trump Tax Plan and the impact it might have on small businesses.
Himmel said, “It’s a fairly broad based plan to change taxes across individuals and small business as well as large corporations. I think, by and large, the intent of the bill is to put more money in individuals’ and businesses’ pockets and keeping less with the government.”
You can listen to the full conversation here.
Trump Tax Plan Small Business Implications
And check out some of the highlights from the discussion below.
Pass-Through Entities Get an Additional Deduction
The bill includes a proposed 20 percent deduction on income for entities that are pass through, including LLCs that are taxed as S Corporations, partnerships and sole proprietors. So essentially, if the income from your business flows into an individual tax return, you could qualify for this deduction. This is obviously most relevant for very small and microbusinesses, and could provide major benefits for those companies.
You Might Not Be Able to Deduct All State and Local Taxes
Though most businesses have been focused on the tax changes that are specifically business related, small businesses are in a unique situation where they’re also largely impacted by the changes for individuals. One of those changes is a new rule that limits the amount of state and local taxes that individuals can deduct on their federal tax returns.
You should still be able to deduct some of these tax payments. But there will be a cap in place. This is mostly relevant for individuals with a fairly high income. But for those individuals who pay a lot in state and local taxes, the impact could be great.
Standard Deduction Increases Could Simplify the Process
One of the aspects of the new tax plan that has gotten a lot of attention is the increase in standard deductions. In many cases, the deduction is now double what it used to be. The idea is that with this higher deduction, fewer businesses and individuals will feel the need to go through the complicated process of itemizing deductions.
Himmel explains, “They want to get away from the idea of individuals itemizing tons of deductions where they could not have the proper support and things of that nature.”
Image: Ryan Himmel