The Tax Cuts and Jobs Act passed at the end of 2017 created different conditions for small business owners.
“Different” is the key word here, says Sadie Roberts, Multi-Unit Office Manager for Block Advisors on Wisconsin Avenue in Tenleytown.
“Are we seeing an overall negative effect? No,” she says. “But are we seeing an overall positive effect? Also no. The truth is, everyone is different.”
The top questions she and Block are getting are on the effects on so-called pass-through businesses and on individual deductions.
A pass-through business refers to one in which the individual owners pay taxes on income from the business through their personal tax returns.
“In addition to S corporations and partnerships, a pass-through also includes a sole proprietorship (Schedule C) and a farm (Schedule F),” Roberts explains.
Under the new tax laws, “generally, business will be able to deduct 20 percent of the net income from the business which, in turn, will lower the income subject to tax. There are limitations on this deduction, depending on the type of business and the net income.”
Other business changes affect property acquired and depreciation. Impacting small businesses in a different way are new laws eliminating some kinds of deductions for certain meals and entertainment expenses. Block has prepared a “plain-language” guide in one front-and-back sheet with the main points businesses and individuals need to know.
Itemized deductions are also the focus of a lot of confusion. Roberts explains: “Under the new law, individuals can still itemize. But it’s a good idea to examine your specific situation to see if it makes sense for you to do so.”
“If the new, higher, standard deduction is more than the itemized deductions, then you’ll have a better tax outcome using the standard deduction.” Increasing charitable contributions or making other changes that are still allowable can make itemizing make sense, she says.
“With the changes, we’ve added on a new feature to address it head-on,” Roberts says. Block has always offered an analysis that looks at the past two years of tax returns to summarize data and detect patterns. Starting this year, the company is offering a two-year look-ahead service, so businesses can take targeted planning steps.