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The tax legislation passed by Congress in December and signed by President Trump – the “Tax Cuts and Jobs Act” – is designed to stimulate the U.S. economy by modifying tax structures as they apply to both small and large businesses.
If you own a business in Florida, how will the new tax legislation affect you? When will the changes go into effect?
If you have questions that are not answered here about the new legislation – or questions about any legal matter that is related to your business – a business attorney can help.
What follows is a general overview of the new tax legislation and its impact on corporations and other businesses, but for personalized advice about a particular business or a specific legal situation, you should always speak directly with a business lawyer.
WHAT ARE THE KEY PROVISIONS OF THE NEW TAX LAW?
What are the new changes to the tax laws?
The key provisions of the new legislation are a lower corporate tax rate and a significant new deduction for pass-through businesses.
With the start of 2018, the corporate tax rate, previously 35 percent, is now at 21 percent, and the alternative minimum corporate tax rate has been abolished.
By reducing the taxes on corporations, lawmakers are hoping to attract and encourage more corporations to start up or move to the U.S.
It is a given that lower taxes attract corporations.
While it is not clear that the new tax rate will actually prompt foreign corporations to move to the United States, the lower rate may keep existing U.S. businesses from re-locating to other countries, according to Wayne Winegarden, a senior fellow in business and economics at the Pacific Research Institute.
“There’s a lot less drive for corporations to move overseas,” Winegarden explained to Business News Daily.
Perhaps the most important provision of the new Tax Cuts and Jobs Act, however, is the change to the tax structure of “pass-through” businesses – the sole proprietorships, partnerships, S corporations, and limited liability companies that constitute more than 95 percent of the businesses in the United States.
WILL TAXES CHANGE FOR PASS-THROUGH BUSINESSES?
The new legislation establishes an automatic 20 percent deduction for pass-through businesses – with one exception, which is explained below.
But for most pass-through business owners, if the income of your business totals $100,000 in 2018, only $80,000 of that total will be taxable.
Supporters of the new legislation believe the 20 percent deduction will give the nation’s business owners the incentives and confidence they need to reinvest in and expand their operations.
There is, however, one very important exception to the new 20 percent deduction rule: persons who own service-oriented businesses such as accounting firms or law firms may only take advantage of the new 20 percent deduction if those businesses earn under $157,500 a year (if the owner is single) or less than $315,000 (if the owner is married).
DID CONGRESS CREATE A TAX LOOPHOLE?
By excluding from the deduction service-oriented businesses with incomes above $315,000 a year, lawmakers believe they have avoided creating a potential loophole in the new law.
Since the small business tax rate is now markedly below the marginal personal income tax rate of most business owners, lawmakers wanted to offer a deduction on the right portion of a business owner’s earnings; they determined that the $157,500 and the $315,000 figures were fair amounts.
Wayne Winegarden explains that the pass-through business tax deduction is theoretically a tax break on a business’s “capital” income, the income generated by long-term assets that appreciate over time.
Many lawmakers believe that capital income should be considered separately from “labor” income that is generated by the ongoing work and labor of a business.
Congress, Winegarden says, settled on the $157,500 and $315,000 figures as a fair place the draw that line.
When will business owners see the tangible effects of the new legislation? It may take time.
The Tax Cuts and Jobs Act was passed and signed late in December, so many business owners may want to revise their growth plans and budgets for 2018.
Economies and corporations do not change rapidly, and the typical wage-earner/taxpayer/consumer will not see personal income taxes reduced until 2019.
For many, take-home pay will go up right away, but only very slightly.
WILL THE NEW TAX LAW AFFECT INTEREST RATES?
Still, most observers agree that the short-term economic outlook is generally good.
However, Wayne Winegarden warns that because the Federal Reserve has kept interest rates low for a decade, lower taxes could prompt the Fed to raise interest rates, a move that could partially offset gains made possible by the lower tax rate.
Winegarden told Business News Daily, “The corporate tax reform is going to be positive, but the Fed can have an overwhelmingly negative role.”
The Tax Cuts and Jobs Act is the first major reform of this nation’s tax laws in nearly three decades.
Backers of the legislation believe that it will trigger badly-needed economic growth.
If you own a business in Florida, and you have any questions regarding the Tax Cuts and Jobs Act, have an experienced and trustworthy business lawyer answer those questions for you.
CAN A BUSINESS LAWYER HELP ME?
If you are planning to expand your business in Florida, to hire new employees, or to launch a start-up in 2018, a qualified business attorney can provide the key insights, the step-by-step guidance, and the sound legal advice that every business owner needs.
A skilled lawyer can help a business owner:
– draft and negotiate contracts
– avoid potential lawsuits
– conduct audits and internal investigations
– protect your intellectual property
– develop compliance procedures, employee policies, and business plans
– stay abreast of pertinent legal developments that may affect your business
Before you start or expand any business, it is imperative to put effective solutions in place before legal problems arise.
This helps to prevent small problems from turning into costly, time-consuming, and unnecessary legal disputes.
Having a knowledgeable business lawyer on your team from the beginning – or as quickly as possible – is the best way to achieve those goals and one of the smartest moves anyone in business can make.
By:Melody Lankford
After graduating from Davidson College, Melody Lankford earned her J.D. from Florida
State University’s College of Law in 2004 and was admitted to the Florida Bar that same year. Ms.
Lankford joined Raydon Corporation as in-house counsel in 2004. She worked there until 2012, when she founded the Lankford Law Firm. She is an experienced Daytona Beach small business attorney who offers sound legal counsel and experience-based insights to her business clients.
