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Tax Reform Overview

There’s been lots of buzz about the “Tax Cuts and Jobs Act” that was signed into law December 2017. Effective from 2018 through 2025, this bill introduces substantial tax changes for 2018. The overhaul will impact both individual and corporate taxes and will require many taxpayers to re-evaluate their tax structure.

For individuals, the big changes are:

·       Reduces individual tax rates by 2%-4% for each bracket. See full chart here: https://www.investopedia.com/news/trumps-tax-reform-what-can-be-done/

·       Doubles the standard deduction from $12.7K to $24K for married filing jointly

  • The standard deduction is used when taxpayers are not benefited by itemizing deductions such as interest on a mortgage. The increase in the standard deduction will pull more tax payers into the standard deduction

·       Eliminates the $4,150 personal exemption which was always used in addition to any deductions

·       Eliminates tax penalty for individual not covered under a qualified healthcare plan

·       $10K limit for itemizers on their property taxes and state income taxes paid

For Corporations and Pass-Through entities, the notable changes are:

·       Flat corporate tax rate of 21% (ranged from 25%-39% prior)

·       Qualified pass-through entities (entities that pass income and deductions to the tax return of owner) receive a 20% deduction on Qualified Business Income          (limitations for professional service entities)

·       Cash basis accounting allowed for businesses with gross sales up to $25 million (previously $5 million)

·       Use of carryforward Net Operating Losses capped at 90% of taxable income

What does this mean for most taxpayers? Since the largest tax rate decrease was given to corporations and pass-through entities, we would expect to see a big change as to how employees decide to be paid by their employers. That is, being a traditional W-2 employee won’t be attractive from a tax standpoint when an employee can create an LLC and be paid as a contractor. This will allow employees to either be taxed as a corporation at a 21% tax rate or become a pass-through entity, allowing 20% of their income to be deducted.

In summary, taxpayers have a lot of planning to consider this year with the implementation of all these changes. Depending on the situation, carrying prior tax strategies into 2018 are not likely to have the same advantages. Please reach out to New Era CFO at (989)-390-6760 or email at cfo@neweracfo.com to schedule a free consultation.

 

Tax Reform and Small Business

           We are currently experiencing an interesting time in the tax world. As of December 2, 2017, the Senate and House have approved their versions of the tax reform bill. The Senate and House have minor differences in each of their bills which means it cannot be signed by President Trump until both versions are identical. The two sides will meet to try to reconcile the differences by December 15, 2017.

            Many business owners out there are probably wondering how the proposed bill(s) will affect their business. This bill will create some substantial tax differences for businesses of all sizes. Most notably, tax rates for corporations and pass-through entities will see significant reductions. Additionally, depreciating assets in full is allowed once a new asset is placed in service. Even though we do not have a signed bill in place, the below link shows a comparison between both bill drafts and the current tax law.

Click here for a detailed chart on the Senate and House bill proposals.

          We will keep you posted on how the final bill comes out (if or when it happens). In the meantime, reach out to us at New Era CFO if you have any questions. We enjoy advising our clients on the uncertain future of US tax law. 

Why the cloud?

              Many small businesses might question “why use a cloud based accounting software?” Well, put simply, the cloud makes your life much more efficient and flexible. The big advantage of cloud based systems is having real-time data at any moment. Being able to access real-time data will help you make better business decisions. Speaking of real-time, multiple people can be working in the same file and see real-time updates that each other are making. On top of that, your software will update automatically when upgrades are available. Meaning, no more black-out periods for your IT department to perform routine maintenance.

               Another great advantage of cloud based systems is the elimination of version control. No more saving multiple versions of files – creating disorganization and sometimes costly mistakes. The cloud saves your work automatically. Furthermore, there is no need to backup files. The cloud has everything backed up for you automatically.

               Isn’t data entry so boring and time consuming? It sure is! If you agree, you should move to the cloud. Cloud based systems allow you to upload or link to live feeds (i.e. bank accounts) which pull in data automatically. Data entry is drastically reduced or eliminated in cloud based systems. This means less time spent doing mundane work and more time to grow your business.

               Mobility and flexibility! The cloud is powered by the internet. Wherever you can find an internet connection, you can access your data and work. Being able to see your cash balance, current financial results, or outstanding bills from anywhere 24/7 will allow you to run your business from anywhere at any time! This leads to greater flexibility in your life.  

               So what are you waiting for? Get with the times and implement a cloud based accounting solution to improve your business and your life!