Most of you have heard by now that the 2018 tax law is now in effect. What do those changes mean for your small business? Over the next few weeks, I will be posting about some of these changes and how they will impact you and your business.
There are two changes that I’d like to point out that will affect everyone who owns a business. These changes are in the favor of the owner and should allow more income to be passed through to the owners.
First, there is a reduction in the corporate tax rate. Previously, there was a graduated tax rate from 15% – 35% depending on the size and type of business. Now, there’s a flat tax rate of 21% for all businesses. While a small portion of business owners may see a slight increase, the overall reduction will benefit most. Businesses such as lawyers, accountants and service professionals will see the biggest decrease since they were being taxed at 35%.
Second, the corporate alternative minimum tax or AMT is going away. Generally, small corporations were exempt if in the previous three years, the gross income averaged $5M or less. Now, larger corporations are exempt from the AMT which will provide additional cash for operations or stock buybacks, etc.
Next week, I’ll cover the new qualified business income deduction and additional bonus depreciation.