As a small business owner, it’s important to stay up to date on current tax laws so you pay the right amount each year.
There may not be any major changes to the small business tax code in 2020, but there are some important things to keep in mind. As you may recall, in 2018, Congress passed major adjustments to business tax law, including a lower corporate tax rate, new rules for pass-through businesses, and a tax break for some industries. Tax reform stemming from the 2018 law is still taking effect and understanding all of the regulations that will be implemented is important for you as you work with accountants specializing in small businesses this year, such as Goldin Group CPAs.
Here are some of the major things to keep in mind:
- Deduction for pass-throughs and corporations: The biggest change businesses saw in 2019 was a significant deduction for both pass-through and corporate entities. Pass-through businesses are small businesses structured as S-corps, limited liability companies, sole proprietorships and partnerships. Pass-throughs make up approximately 95% of U.S. businesses. The new law provides a 20% deduction for those businesses. There are limitations on service-based businesses, such as law and accounting firms. Some of these limitations become effective exceeds $315,000 per year ($157,500 if single).
- C corporations are also getting a big deduction: The new law lowers the tax rate for C corporations from 35% to 21%. This slashed rate aims to bring major corporations back to the U.S. to employ workers and create wealth.
- First-year bonus depreciation:The first-year bonus depreciation deduction is now 100%. In other words, businesses that make eligible equipment and property purchases can deduct the full amount of the purchase price instead of writing off a portion of the expense each year. This provides businesses with more money upfront, which lawmakers hope will be invested back into the business or used to hire workers.
- Net operating loss changes: Net operating losses (NOLs) can no longer be carried back for two years, but instead can be applied for an indefinite amount of time going forward. NOLs occur when a business’s tax deductions exceed its taxable income. It functions as a form of tax relief for businesses, where business owners can apply a NOL to future tax payments. The change eliminates businesses’ ability to restructure taxes completed in years past, but it extends the lifespan of NOLs indefinitely; however, this can only be applied to 80% of taxable income.
Due to these changes and for other reasons, small business owners should not treat income taxes as an annual event. Rather, tax planning should be a year-round activity. Waiting until the last minute makes tax preparation more complicated, and it limits your money-saving options.
Trust the Professionals at Goldin Group
At Goldin Group LLC, we understand that as a business owner, keeping up with accounting and taxes is time-consuming and can even be overwhelming. That’s where we can help! We work with individuals and businesses in Maryland (DC Metro Area), offering a variety of financial services designed to save you time and lower your tax burden. If you are a small business that is looking to outsource your accounting or if you need help managing any aspect of your business’s or nonprofit’s finances, we want to hear from you. Call us at (301) 913-0008 or email firstname.lastname@example.org to make an appointment.