How the Trump Tax Reform Will Impact Entrepreneurs

Written By: Lisa Published On: 5/04/18

Every nation’s tax plan is crucial for the growth of its economy and citizens. As seasoned entrepreneurs, we know firsthand how government interference can affect operations and investments. Whether you like or hate the current political environment, there is no question that startups and small businesses make up the bulk of the economy (more than 90% of employers, according to the SBE Council). The House of Representatives and the United States Senate passed the final version of the Republican Tax Bill on December 20, 2017. The tax bill was based off of Trump’s administration plans as presented back in September 2017. This act will minimize income tax rates and double standard deductions while decreasing itemized deductions and changing business, child and elder care taxes.

So what impact will Trump Tax Reform have on Entrepreneurs?

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Corporate Tax Cuts and Entrepreneurs

The final version of the act reduced corporate tax rates by 14 percent (from 35 percent to 21 percent.) Even though the former Senate bill proposed a corporate tax deduction of 35 percent to 20 percent, 21 remains an impressive reduction, and a boon to smaller businesses that were feeling the pinch.

Property Tax Deductions

Individuals and entrepreneurs in 2017 could deduct state and municipal property taxes from their federal returns, which was a boon to employers in high-tax areas like Silicone Valley. That won’t be true for the 2018 tax year, which is enough of a pinch to drive some businesses (over 9000) out of these high-tax states altogether. Others are holding on but expanding into business-friendly areas rather than investing further into coastal communities. For example, Software Giant Adobe and Toby Scammell’s data firm Womply have their headquarters in San Jose and San Francisco, respectively,  but are expanding in Lehi, Utah along the silicone slopes corridor.

Pass-Through Entities Tax Reduction

Prominent entrepreneurs are not the only ones who enjoy the tax refit. Small business owners who formed pass-through businesses (such as Limited liability companies “LLCs” and S corporations) for tax purposes will get a break too.

That’s because, under the previous act, returns from small businesses would “pass through” to the owners and get taxed at their individual rates.

At times, these rates would be as high as 39 percent. The new Republican Tax Bill allows small business proprietors to subtract 23 percent of their returns, which will immensely help them save on taxes.

Mixed Bag

Nonetheless, do not run off and become an LLC or S corporation just yet. In exchange for the new reduced rates, pass through entities will have to take on some expenses and responsibilities in payroll and bookkeeping needs. If this does not trouble you, go ahead and start your pass-through entity. Even though established firms will benefit more from the tax bill, this specific section of the Tax Cuts and Jobs Act is intended to help those whose profit margins are less than $157,500 Per annum for single taxpayers and $315,000 per annum for married-joint taxpayers.

Besides benefiting small business owners, the Tax Cuts and Jobs Act will encourage investments by permitting businesses to subtract costs of depreciable properties in 1 year vs. remunerating them over numerous years.

AMP Advance is a Miami based industry leading direct funding source out of Coconut Grove, Florida. We help those who are in need of small business financing by providing web based financing options & funding solutions. Our solutions assist small business owners find matching opportunities while assisting small business owners improve their overall financial situations. AMP Advance provides small business loans, business lines of credit, accounts receivables financing, equipment financing, unsecured business loans, and revenue based loans to millions of small business owners nationwide.

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