As is there's not enough going on in the marketplace, and as the damage from Hurricane Harvey continues to pile up, the White House is planning to announce additional information on a proposed overhaul of the U.S. tax code this week. Following the initial announcement of changes to the tax code released in April, many entrepreneurs and small business owners were left wondering what these changes meant for them.
Reports have surfaced that top aides and congressional leaders have made progress beyond the six-paragraph framework released in July, Still, it's important to remember that at this point there is no tax legislation moving through Congress. These proposed ideas will inevitably change as the legislation moves through Congress, but at this point,we do have some of the broad strokes.
Proposed changes, projected to be discussed in more detail this week, have implications for individuals, corporations, and small business owners. Some of these proposed changes will have a dual effect on you and your business -- so let's take a look at three of the big ones.
As always, be sure to consult with your CPA or tax professional before making any changes to your business plan or operations.
1. The elimination of state tax deductions.
This proposed changed to the tax code could potentially have a large impact on the profitability of your business, specifically if you do business across state lines. Currently, state taxes paid in one state can usually be deducted for the purposes of federal taxes. But if this deduction is eliminated, it could result in an unexpectedly larger tax bill--which could mean the difference between profit and loss.
2. Phase out of the Section 179 deduction.
Currently, many small businesses can qualify for accelerated depreciation on certain capital expenditures, which can result in significant tax benefits. Remember, depreciation is an expense on your income statement--which, in the case of Section 179 items, can significantly reduce the taxes you owe. The potential phaseout of this deduction could have a large impact on small business investment, and the taxes you're paying.
3. Interest deductions may go away.
Taking on debt is virtually a guarantee when you start and operate a business. That's partially offset by the fact that business interest is deductible. This expense reduces the amount of income generated by the business, which in turn reduces the amount of incomes taxes you end up paying.
By borrowing these funds, you gain the working capital that you need to expand your business. If this deduction is eliminated, you and other small business owners may be left with higher expenses, and unfortunately, higher taxable incomes.
Keep one eye peeled on the potential changes in the tax code this week. We just covered a few of the highest profile items that might change for your business, but this analysis is difficult because most of the specifics are still a work in progress. Keep learning about the specifics of these proposed tax changes, and you'll be able to make the best possible decision for your organization in this rapidly changing business environment.