Small Business Tax

The recent tax legislation mean small businesses everywhere are getting a break on their taxes. The legislation, which is one of the most significant tax overhauls passed in decades, provides pass-through businesses and corporate entities with lower rates.

Insureon, an insurance company that works with small businesses, partnered with Manta to poll 2,700 small businesses about the new tax legislation's potential impact. The survey found that 83 percent of small businesses owners are optimistic about the tax bill and 38 percent said they would hire additional employees because of the savings. This kind of positivity, combined with the actual benefits from the legislation, can act as a catalyst for small business tax and economic growth.

"With respect to the current tax law changes … what we wanted to understand was, what does this mean for small business and what's the general attitude and tone among small businesses as they contemplate the impact that this might have on their future growth?" said Jeff Somers, president at Insureon.

As a small business owner it's important to stay up to date on current tax laws so you can ensure you're paying the right amount each year. [Doing your taxes on your own? Find the best software to use in our reviews of the Best Tax Software for Business 2018.]

Deduction for pass-throughs and corporations The biggest change all businesses are facing this year is a significant deduction for both pass-through and corporate entities. Pass-through businesses are small businesses structured as S-corporations, limited liability companies, sole proprietorships and partnerships. Pass-throughs make up about 95 percent of U.S. businesses. The new bill provides a 20 percent deduction for all those businesses. The only limitation is on service-based businesses like law and accounting firms making more than $315,000 per year ($157,500 if single).

C-corporations are also getting a big deduction: The new legislation lowers the tax rate from 35 to 21 percent. This slashed rate aims to bring major corporations back to the U.S. to employ workers and create wealth.

First-year bonus depreciation The first-year bonus depreciation deduction is going from 50 to 100 percent. In other words, businesses making eligible equipment and property purchases can deduct the full amount of the purchase, instead of writing off a portion of the expense each year. This provides businesses with more money up front, which lawmakers hope will be invested back into the business or used to hire workers.

"The new tax plan will allow businesses to write off the cost of assets in one shot," said Josh Zimmelman, founder of Westwood Tax & Consulting. "A company can invest in vehicles, computers and equipment, and claim the entire expense on their 2018 tax return."

Wayne Winegarden, senior fellow in business and economics at the Pacific Research Institute and managing editor of EconoSTATS, said the break is an incentive for businesses to spend more.

"Anything that gets you closer to complete expensing is going to increase the value of the depreciation, lower the tax burden and reward those capital-intensive firms," he said.