How Trump’s New Tax Plan Might Affect Your Small Business – Learn Here How Trump’s New Tax Plan Might Affect Your Small Business – Learn Here

For any given country, having a tax plan is very important. This is not only crucial to the country, but it is essential for the overall growth of the country, including its economy and the citizens as a whole.

A tax plan, therefore, not only has a huge effect on a worker’s take-home pay, but it also plays a significant role in everyone’s opportunities. So, whether you are an employer or an employee at any business, be it small or big, you will understand how important opportunities can be and how much the decisions made by the government can affect your success rate.

How Trump’s New Tax Plan Might Affect Your Small Business – Learn Here In this article, we shall look at how Trump’s new tax policy has an effect on your small business and how this tax plan will shape your business in the future.

Looking Back At Trump’s Tax Plan

Tax Plan

The United States Senate and House of Representatives passed a final version of the Tax Cuts and Jobs Act on December 20, 2017. This regulation was based on the plans presented by Trump’s administration in late September, the same year. According to this plan, it will cut income tax rates and double the standard deduction, while reducing deductions on items and changing child, elderly care and business taxes.

The final plan in 2018 cuts the corporate tax from 35 percent to 21 percent and temporarily lowers the income tax at nearly all levels. Thus, individuals with an annual income between $9,525 and $38,700 will see a drop from 15 percent to 12 percent, whereas individuals with an annual income of more than $500,000 will see a drop from 39.6 percent to 37 percent, respectively.

However, as per the final tax plan, the only group that will not see lower income taxes under this plan would be the lowest earning bracket of under $9,525 per year for single taxpayers and under $19,050 for those filing jointly. Their income tax rate would stay at 10 percent.

The income levels rise each year with inflation. As a result, more people are subject to the highest bracket than they would have been under the old method. By 2025, 8.9 percent of taxpayers will pay more than they would have under the previous tax law. In 2018, only 4.8 percent of households paid more.

Summing this up, it cuts individual income tax rates, doubles the standard deduction and eliminates personal exemptions. The top individual tax rate falls to 37 percent. The Act cuts the corporate tax rate from 35 percent to 21 percent at the beginning of 2018. The corporate cuts are permanent, however, the individual changes expire at the end of 2025.

Tax planning

The Final Tax Plan

The final tax bill still allows for certain itemized deductions (if opting out of the newly doubled standard deduction), such as charitable contributions, state, local and property taxes (deductions of which are now capped), retirement savings and mortgage interest.

While many deductions and other factors were otherwise altered, including deductions for medical expenses, moving, theft or loss of valuables, electric vehicles credits and married/joint filers, I would like to focus completely on how the Trump administration’s tax plan may affect your business.

The tax plan allows corporations to deduct state and local taxes and doubles estate tax exemptions and helps the 1 percent who pay them while contributing about $17 billion in taxes.

The Alternative Minimum Tax will remain, but will now raise the income bracket for those affected to those with incomes over $70,300 (as single filers) or $109,400 (as married/joint filers). The plan will also benefit small business owners, encouraging investments by allowing businesses to deduct the cost of depreciable assets in one year versus amortizing them over many years.

Therefore, under the current tax system, multinationals are taxed on their income earned overseas when they bring the profits back to the United States. The new territorial system will not tax foreign profit, encouraging these business owners to bring their profit back and reinvest it in the United States rather than leaving their earned money parked overseas.

While the tax cuts certainly apply across the board to nearly all income levels, the emphasis here is tax cuts for businesses. It is important to understand that these tax cuts are being put in place to attempt to perpetuate economic growth and benefit the country as a whole. Supply-side economics is the theory that increased production will drive economic growth, labor and entrepreneurship. Supply-side economics policies rely on tax cuts and deregulation.

So, as business owners, you must do your part and take advantage of these tax cuts to not only grow your businesses but also to improve the nation’s economy.

Ways Trump’s Tax Plan Affects You As A Common Individual

The Trump Tax Act is so complex that it affects each family differently depending on their personal situation. Here is a broad description of how it might affect the following seven groups:

(i) High Income: If you have a very high income, the tax plan helps you the most. According to the Tax Foundation, those who earn more than 95 percent of the population would receive a 2.2 percent increase in after-tax income. Those in the 20 percent to 80 percent range would receive a 1.7 percent increase. As per the Tax Policy Centre, those in bottom 20 percent would only receive a 0.4 percent increase.

(ii) Heirs to Wealth: If you inherit a lot of money, the larger exemption for the estate tax will benefit you.

(iii) Few Deductions: If your itemized deductions are less than the new standard deduction, you win on two levels. First, the larger standard deduction will reduce your taxes. Second, you can skip the complicated process of itemizing. That not only saves you time but also money if you no longer need to pay a tax advisor.

(iv) Large Families: You may be hurt by the elimination of personal exemptions. The higher credits for children and elderly dependents must not be enough to offset that loss.

(v) Home-owners: If you take out a new home equity line of credit, you can only deduct the mortgage interest if you use it to buy or renovate a home. If you take out a new mortgage or refinance an existing one, you can only deduct the interest up to the limit. If you live in a state with high property taxes, you can only deduct the first $10,000.

(vi) Young People: Since young people are generally healthier, they are more likely to benefit from the elimination of the Obamacare tax.

(vii) Self-employed: If you are a 1099 contractor, own your own business, or are self-employed, you may benefit from the 20 percent deduction on qualified income.

How Trump’s Tax Plan Affects Small Businesses

Tax plan helps businesses more than individuals. Business tax cuts are permanent, while the individual cuts will expire in 2025. But the nation’s largest private employer, Walmart, said that it will raise wages. It will also use the money saved by the tax cuts to give $1,000 bonuses and increase benefits.

As of March 2018, the tax cut spurred a record number of mergers. Corporations are using the cash windfalls to award dividends and buy back their own stock. In the first quarter, they spent $305 billion on share buybacks and cash mergers. They only spent $131 billion to increase wages, according to TrimTabs. That is just slightly above the pace over the last five years.

Apple agreed to pay $38 billion to bring home as much as $252 billion in overseas cash. It will invest $30 billion in capital spending, creating 20,000 jobs. The repatriation could also raise Treasury note yields. Corporations hold most of the cash in 10-year Treasury notes. When they sell them, the excess supply would send high yields.

JP Morgan announced a $20 billion, five-year investment across its businesses.  It would increase charity donations by 40% to $1.75 billion over five years.

Tax Plan and Its Impact on the Economy

The Act makes the U.S. progressive income tax more regressive. Tax rates are lowered for everyone, but they are lowered the most for the highest-income taxpayers. The increase in the standard deduction would give benefit to 6 million taxpayers. That is 47.5 percent of all tax filers, but for many income brackets, that will not offset lost deductions. The Trump tax plan cuts the cost to the government even more.

The Act increases the deficit by $1 trillion over the next 10 years, according to the Joint Committee on Taxation. It says the Act will increase growth by 0.7 percent annually, reducing some of the revenue loss from the $1.5 trillion in tax cuts. The Tax Foundation made a slightly different estimate.

It said the Act will add almost $448 billion to the deficit over the next 10 years. The tax cuts themselves would cost $1.47 billion. But that is offset by $700 billion in growth and savings from eliminating the ACA mandate. The plan would boost gross domestic product by 1.7 percent a year. It would create 339,000 jobs and add 1.5 percent to wages.

The U.S. Treasury reported that the bill would bring in $1.8 trillion in new revenue. It projected economic growth of 2.9 percent a year on average. The Treasury report is so optimistic because it assumes the rest of Trump’s plans will be implemented. These include infrastructure spending, deregulation and welfare reform.

The JCT analysis is probably the most accurate since it only analyses the cost of the tax cuts themselves. The tax cuts’ increase to the debt means that budget-conscious Republicans have done an about-face. The party fought hard to pass sequestration. In 2011, some members even threatened to default on the debt rather than add to it. Now they say that the tax cuts would boost the economy so much that the additional revenues would offset the tax cuts.

The impact on the $21 trillion national debt will eventually be higher than projected. A future Congress will probably extend the tax cut limits that expire in 2025. Increase in sovereign debt dampens economic growth in the long run. Investors see it as a tax increase on future generations. This is especially true if the ratio of debt-to-GDP is near 77 percent. According to a study by the World Bank. It found that every percentage point of debt above this level costs the country 1.7 percent in growth. The U.S. debt-to-GDP ratio was 104 percent before the tax cuts.

Supply-side economics is the theory that says tax cuts increase growth. The U.S. Treasury Department analyzed the impact of the Bush tax cuts. It found that they provided a short-term boost in an economy that was already weak. Also, supply-side economics worked during the Reagan administration because the highest tax rate was 70 percent.

The most significant tax cuts should go to the middle class who are more likely to spend every dollar they get. The wealthy use tax cuts to save or invest. It helps the stock market but does not drive demand. Once demand is there, then businesses create jobs up to infinitely. Middle-class tax cuts create more jobs. And the best unemployment solution is government spending to build infrastructure and directly create jobs.

How These Tax Cuts Can Benefit Your Business

With lower taxes, you can grow our workforces and create jobs. The new and stronger workforces can help create new products. If wages grow, your employees will earn more and can also spend more. Also, your customers will receive their tax cuts and spend more on new products and new services from growing companies and, together, you can prosper in the long run.

Although you may not always agree with the present U.S. President Donald Trump or even agree with his tax plan, it is important that you do your part in order to improve the conditions of the country and the country’s economy. If tax cuts and deregulation are on the horizon, you must act accordingly and use it to reinvest in your companies and in your country as a whole.

The Bottom Line

The Tax Cut and Jobs Act significantly changed personal and corporate taxes. Corporations benefit more since their cuts are permanent while the individual cuts expire in 2025.

Individual tax rates have been lowered, the standard deduction raised, and personal exemptions were eliminated. Many itemized deductions are removed while the medical expense deduction is expanded. Families with several children and elderly dependents may pay more taxes with the elimination of exemptions. Healthy, young citizens would pay less with the elimination of Obamacare tax. Those who earn more than 95 percent of the population will see an increase of over 2 percent in after-tax income while the bottom 20 percent will enjoy only a 0.4 percent increase.

The maximum corporate tax rate has been lowered from 35 percent to 21 percent. Pass-through companies receive a 20 percent deduction on qualified income. The corporate AMT has been eliminated. The plan encourages corporations to repatriate foreign earnings.

The Tax Act may curtail growth in the long run. According to the Joint Committee on Taxation, the Act will add $1 trillion to the debt economic over the next 10 years. Since tax rates were not prohibitive to start with, their benefits will not trickle down to boost consumerism and economic growth. Since they occurred during the expansion phase, they will not generate many new jobs.

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