Changes to the American Taxpayer Relief Act, and it’s Impact on Small Business Owners
Small businesses need to be aware of every tax change that applies to them for several reasons. You want to keep up-to-date on the latest tax regulations so that your tax filings are accurate, and you don’t want to miss out on any deductions that you can take advantage of. One of the latest changes to the tax law, the American Taxpayer Relief Act, has some areas that are quite relevant to small business owners.
- This act has business tax extensions that may prove helpful to small businesses. Several extensions and tax credits include expensing mine equipment, extension of the work opportunity tax credit, exclusion of 100% gain on small business stock, empowerment zone tax incentives, new markets tax credit, bonus depreciation, and research credit.
- While extensions to these tax credits are great for small businesses that they apply to, you may end up paying more in taxes overall depending on your personal income. If you make more than $225,000 as a filing jointly married couple, $400,00 single filer, $425,000 head of household, or $450,000 joint filer, you pay 39.6% in taxes.
- Another change to personal taxes involves capital gains, along with dividend earnings. If you get a profit from selling your business, you’ll be paying 20% if your income is over $400,000 as an individual or $450,000 for married couples. Estate and gift tax changes may concern you if you’re running a small business with your family. The rates for these have been changed to 40%, if the value is over five million dollars.
- You may be claiming less personal exemptions this year as well, if you earn over $300,000 for joint filers, $250,000 for single filters, $275,000 for head of household, or $150,000 for married filing separately. Every $2,500 above this income limit reduces your allowable exemption by 2%. This change also affects itemized deductions by 3%, if you itemize instead. If you were subject to the Alternative Minimum Tax before, the exemption rate for these were increased to $39,375 for married filing separately, $50,600 for single, and $78,750 for joint filers.
The credits extended under the Relief Act can lead to more money for your small business cash flow, which is always good news. Of course, if you’re bringing home a personal income higher than the limits covered in the Act, you’re going to be feeling it in your pocketbook. You want to ensure that your small business gets a chance to use its profits for reinvestment.
The highest earners are the ones hardest hit, but everyone below that threshold will see their tax bills much lower this season. Given the slow recovery of the economy, this is welcome news for any business that’s been struggling. The extra money comes in handy for business expansion, equipment purchase or renting, employee hiring, and improvement of existing sites. Don’t forget about all of these tax credits that you can take when you file your business taxes this year. You don’t want to miss out on any reduction in your tax bill.
If you would like to read the act in it’s entirety, it can be found here.
February 20, 2020