How Will the New Tax Reform Affect Your Business?
Business is the big winner in the newly approved Tax Cuts and Jobs Act, which was passed recently by the U.S. Senate and signed into law by President Trump.
The Tax Cuts and Jobs Act states, “For taxable years beginning after December 31, 2017 and before January 1, 2026, an individual taxpayer generally may deduct 23 percent of qualified business income from a partnership, S corporation, or sole proprietorship, as well as 23 percent of aggregate qualified REIT (Real Estate Investment Trusts) dividends, qualified cooperative dividends, and qualified publicly traded partnership income. Special rules apply to specified agricultural or horticultural cooperatives.”
In addition to helping S Corporations, which pass income along to shareholders, the corporate tax rate for C Corporations will be permanently reduced from 35% to 21%, making American businesses more competitive in the global marketplace. This move is expected to boost the economy by businesses increasing employee wages and creating new jobs. Additionally, the tax changes are projected to attract international business investments and jobs to the U.S.
Some companies have already taken positive action. Fifth Third Bancorp announced that it will raise the hourly minimum wage to $15 for all employees, and will also pay out a one-time bonus of $1,000 to approximately 13,500 of its employees. Wells Fargo also pledged to hike minimum wages to $15 per hour, and said it plans to target $400 million in philanthropic donations in 2018. A handful of other large corporations announced similar compensation plans and planned charitable contributions as a result of tax reform.
American Bankers Association President and CEO Rob Nicols said, “ABA believes the significant reforms included in this legislation will help grow the economy and create jobs. We particularly applaud the provisions that significantly lower tax rates for all types of businesses beginning in 2018.”
Your tax adviser can tell you personally how your business will be impacted but the overall effects of this tax reform will be favorable to companies big and small. And speaking of tax advisers, you will want to rely on these professionals as the process for taking advantage of the tax cuts is more complex.