Though the act was passed in 2017, the Trump Tax Cuts Act is still a hot topic in the world of finance because of the changes it introduces. There are still seven income brackets but tax rates are lower in general. What this implies for small businesses are certain drawbacks and certain benefits.
Small business owners are generally seeing larger returns, but there is no real clarity on how to classify the various types of small businesses including S-corporations, sole proprietorships, partnerships and so forth land. Businesses and their accountants are trying hard to understand if their respective business qualifies to gain from this 20% tax break. IRS worked through most of 2018 and early 2019 to help define more clearly which businesses and industries would be able to benefit from this change in policy.
So what’s the big deal?
It is a win for small businesses however, to be able to retain profits and increase returns, often suffering from losses in the form of deductions. Rules now are more stringent when trying to determine who can make what and how far they’re qualified to benefit from these changes.
For instance, the ability to take the deduction changes depending on the filer’s marital status, with single filers being disqualified at certain amounts, and married filers at another. If their income in certain fields exceeds a set limit, they’re moved up to a higher tax bracket and thus owe greater taxes. For Specified Service Trade or Businesses (SSTB) the rules vary slightly in their inability to take the deduction if their income goes over $207,500 as single filers and $415,000 as married filers.
It’s what makes the already confusing phenomenon of taxation even more confusing as people try to understand how they can run their businesses and remain taxpayers.
To know more about how taxation works, you can get in touch with me at moneycashvalue.com.