So you’ve most likely just wrapped up filing your 2016 taxes for your small business. And before you take a breather from business tax, you’ll want to take note of tax-related matters that affect you as an entrepreneur.
According to a recent article from Business News Daily, here are some business tax trends in 2017 that solopreneurs and small business owners should watch:
Bonus Depreciation Is Extended
Bonus depreciation — a tax break that allows new businesses to take a 50 percent deduction on new eligible equipment when it’s first purchased — lives. Unless Congress takes action to change this, this tax break will end in 2020 under the 2015 PATH Act.
One thing to note is that while bonus depreciation still exists, the percentage you can deduct will go down until 2020 when it’s set to expire. You can deduct 50 percent in 2017, 40 percent in 2018, and 30 percent in 2019. So if you’re looking to buy equipment for your business, it’s best to do so in 2017 to reap the maximum tax deduction.
Higher Cap on Social Security Taxes
Last fall the Social Security Administration announced that in 2017 the max amount of earnings subject to the combined Social Security and Medicare tax of 7.65 percent will increase to $127,200. This is up by $8,700 from the $118,500 in years prior.
As self-employed folks have an employer match requirement, this means that you’ll have to pay a 15.3 percent tax on the first $127,200 of your income. Doing the math, the most self-employment tax you’ll have to pay is $7,886.40, which is $539.40 more than the $7,347 in 2016.
Change in R&D Tax Credit
As part of the PATH Act, new businesses can apply a research and development tax credit for up to five years. If your company has less than $50 million in gross receipts, and you have gross receipts for five years or less, then you’re in luck. You can take advantage of this tax credit and apply it toward qualifying R&D related expenses. This tax credit can be used to offset the alternative minimum tax (AMT), and it could result in you paying less on taxes.
Expansion of Work Opportunity Tax Credit
The PATH Act retroactively allows eligible employers to claim the Work Opportunity Tax Credit (WOTC). You can claim this tax credit for employees who are veterans. As of January 1, 2016, business owners can also claim this on employees who were unemployed for a long period. In other words, they were previously unemployed for at least 27 weeks. If the employee began working for you anytime after December 31, 2014, to January 1, 2020, you can take advantage of this tax credit.
Trump’s Business Tax Plan for Corporations
Trump’s proposed tax reforms include a plan to slash the corporate tax rate to 15 percent from the current 35 percent would affect both mom-and-pop businesses and larger entities. Keep in mind that the corporate rate only affects C Corps, not pass-through entities such as LLCs and S Corps. That’s because LLCs and S Corps are taxed based on the shareholders’ personal income tax return, and therefore they aren’t subject to federal income tax as an entity.
When the new law is passed, you’ll want to sit down and revisit your business structure. It may be that filing as a C Corp and taking the corporate tax rate is the better option for your company.
To learn more about filing your small business as a C Corp, check out how Incfile can help you with that process and make it easier for you.