Trump's Tax Cuts Effect on Small and Mid-Sized Business

tax cutsThis is the year that President Trump makes due on his promise to “bring back Main street” by introducing the new tax laws for small business owners to reduce their tax burdens and increase the opportunities to grow their business. Since the tax cuts plan is now finalized and set in law, business owners and accountants have had the chance to thoroughly review the changes but have mixed reviews on whether or not this is as beneficial for small businesses as it was hyped up to be.

Legislation has without a doubt given the biggest tax cuts and advantages to those small businesses that earn more than $200,000 which has given these companies the ability to provide salary increases for their employees and boost capital investments. It is this group that has had the biggest changes but overall most small businesses will come out ahead compared to the previous laws no matter how small it may be. This has left advocacy groups on opposite sides of the spectrum if the President has actually fulfilled his promises.

Larger Companies Benefit the Most From Trump’s Tax Cuts

While the President has claimed that more than 30 million small businesses would see at least a 40% tax cut in their marginal tax rate, independent groups have revealed that only small business owners with earnings of more than $418,400 or 13% of all small business owners would see that 40% tax cut. It looks as if the lower pass-through rate would mostly only benefit the large and most profitable businesses instead of the claimed help to middle class small business owners.

Many feel that Trump’s tax cuts fall short in helping the true small business owners with less tax complexity and introducing a more fair competitive environment. Actually there are a large group of business owners that feel the dramatic tax cuts to larger corporations are making matters worse for smaller businesses and startups in growing their businesses. A recent poll revealed that a top priority for small business owners was to create a tax system that is fair to all.

20% deductionAll Small-Business Owners Benefit From Trump’s Tax Cuts

Trump’s tax cuts do broadly benefit those businesses labeled as pass-throughs in which their business profits are included in their individual returns as personal income. More than three quarters of small businesses in the country file their taxes as pass-throughs. The new legislation reduces taxes for these companies in two ways.

  1. Reduction to individual rates as the new top rate is down to 37% from 39.6%. Pass-through businesses can take off 20% of their earned business income when filing taxes.
  2. Deduction of capital spending rises to $1 million from $500,000 for the first year. The legislation also immediately increased the portion of capital investments that can be deducted to 100% from 50%.

Small business owners of all sizes definitely should feel relieved from Trump’s tax reform and it should not come to anyones surprise that the larger companies will benefit the most. After all these larger businesses are earning higher profits and in return paying higher amounts in taxes.

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