4 small business tax breaks in the Trump tax plan

Will the Trump tax plan help or hurt my business?

That’s the question on most business owners’ minds. But most of the discussion is about the implications for big business – so what about the little guys?

Here are four things to start doing now that can turn into big tax breaks for your small business in 2018.

Aggressively invest in capital assets

The new tax plan dramatically increases the number of equipment purchases you can deduct from your taxable income.

In fact, for 2018 only, it makes this amount unlimited. To take full advantage, plan your business equipment purchases for the next few years and make as many of those purchases as you can in 2018.

More money deducted means fewer taxes for you, and the more deductions, the better, since you can carry forward losses into future years to offset taxes.

Control interest expenses

Previously, businesses were allowed an unlimited deduction on interest expenses for things like bank loans and lines of credit. Under the new plan, that deduction is now capped at 30% of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

This means that business with sizable debt might have to pay higher taxes—so make sure you control your interest expense.

Evaluate your accounting method

The new tax plan gives more businesses the option of using cash accounting.

Previously, only business doing $5 million in annual sales or less were eligible. That ceiling is now $25 million.

For smaller businesses where cash flow is tight, cash accounting may provide a tax benefit since you won’t be taxed on revenues for which you have not yet received payment. But there are other issues to consider.

To decide if cash accounting is right for your business, consider the pros and the cons and ask yourself these three questions.

Optimize your pass-through income

For the first time, pass-through income is getting a tax break.

A pass-through business is any business (sole proprietorship, partnerships, and S-corps) where income is “passed through” to the owners and taxed at the owner’s personal tax rate—as high as 39%.

Under Trump’s new tax plan, you can take a 20% deduction for pass-through income. As with most tax breaks, there are some exceptions, so make sure you know how to optimize your pass-through deduction.

In summary

The new tax plan…

  1. Allows for unlimited immediate expensing of equipment in 2018 only
  2. Caps the interest expense deduction at 30% of EBIDTA
  3. Allows businesses with up to $25 million in annual sales to use cash accounting
  4. Creates a deduction for pass-through income

 

Need working capital to invest in equipment purchases?

C2FO does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and should not be relied on for, tax, legal or accounting advice. You should consult your tax, legal and accounting advisors before engaging in any transaction.