What does the Tax Reform do to your Ownership Conversion Plan™?
When the Tax Cuts and Jobs Act passed, I told you about some of the business wins and advantages. Now you may be asking yourself what that means for your Ownership Conversion Plan™. The answer, for most small businesses, is more money to put back into your business, buy new equipment, hire new workers or expand operations. That, in turn, helps your businesses become more successful and help you reach your Designed Destinations.
Sole proprietorships, partnerships and S corporations are what is known as pass-through businesses. These companies, which make up 95% of all businesses in the U.S., may qualify for a 20% tax deduction. Now, there are some limitations for these deductions for married individuals who own service-based businesses. These would include accounting firms, law firms, physician offices and any other small business, which perform services only. These individuals can only claim the deduction if their income is less than $315,000 annually or $157,500 for single tax filers.
Let’s say, for example, that your business income is approximately $200,000 a year. Under the new tax guidelines, your taxable income would only be 80% of that or $160,000. This would give you $40,000 to reinvest in your business. Depending on your current needs that could allow you the ability to update machinery or purchase software that will improve your business operations. Over the next five years, you will have $200,000 in additional income that will allow you to make significant upgrades to your business.
If your company is a C corporation, you will benefit from a reduction in the federal income tax rate from 35% to 20%.
These benefits can potentially go a long way in supporting the implementation and evolution of your Ownership Conversion Plan™. It will give you more money to make improvements and allow your business to flourish or become the butterfly, as I talk about in my book. As you take advantage of the additional tax benefits for businesses, you will be able to plan for your future by design with more confidence and capital.
Ganim Financial, GFS, does not offer tax or legal advice. Any decisions whether to implement these ideas should be made by the client in consultation with professional financial, tax, and legal counsel.