Tax cuts, Jobs Act of 2017 to have positive effect on small biz, Staten Island experts say
When the Tax Cuts and Jobs Act was signed into law at the end of December, businesses were inundated with news about the rampant changes that will take effect this year: New rules for deductions, changes in income and capital gains rates, adjustments to charitable donations. But after a month of sifting through this sweeping tax overhaul, deciphering all of the details and considering the bill’s overall long-term impact, experts have since compiled a comprehensible breakdown.
“The Tax Cuts and Jobs Act of 2017 really does live up to its name,” noted John Vento, a CPA with offices in New Dorp. “All provisions are geared toward lowering tax expenses for small business owners, and one of its aims is to create jobs as well.”
Vento, who is also the author of “Financial Independence (Getting to Point X): An Advisor’s Guide to Comprehensive Wealth Management,” has been studying the new tax laws for several months, deciphering the changes for an addendum to his book.
“There is a lot to talk about, a huge hit list of changes,” the CPA said. “But overall I think for businesses, this is a very positive adjustment.”
According to Vento, one of the biggest changes business owners will see in terms of deductions focuses on entertainment expenses.
“Business entertainment expenses have always been a 50 percent deduction,” Vento said. “With this new tax law, those expenses are no longer deductible. And in the area of business meals, companies are now only allowed to deduct 50 percent of a meal provided on employer premise, not 100 percent. Plus things like country club dues are no longer a write off, so businesses will have to make some adjustments there as well. I think the main implication we’ll see here is that many businesses, including larger corporations, will no longer be able to provide season tickets to sporting events and other such perks.”
Lobbying expenses are no longer deductible and employee achievement awards that were heretofore garnished with a cash prize can no longer be given — the reward now has to be tangible property. And there’s a provision in the law that affects existing sexual harassment settlements.
“If you’ve made a sexual harassment settlement as a business owner that included a non-disclosure agreement, that settlement is no longer tax deductible,” Vento said. “And in today’s controversial climate on this issue, that is a very timely point.”
Almost all of the tax credits that were previously available to businesses are still available now, including those for research and development.
“In the area of depreciations expenses, there’s a section 179 deduction that allows businesses to write off a certain amount of furniture and equipment,” Vento said.
“Effective Jan. 1, that deduction is increased to $1 million. That’s a big incentive for businesses to reinvest in their company.”
Vento says another hot topic that’s causing a lot of confusion is the law’s 20 percent tax break.
“Regardless of how your business is set up — sole proprietorship, partnership, S corporation or LLC — you will get the tax benefit of being able to reduce your business’ taxable income by 20 percent,” Vento said. “This will result in a huge savings for small business owners who all qualify for this tax break.”
Business owners will want to monitor their personal income, Vento noted, because once income reaches a certain level, that tax break will get reduced.
“When the personal taxable income of a single individual reaches $207,500, that tax break doesn’t apply, and for married individuals, income has to reach $415,000,” Vento said. “So in order to qualify for that big tax break, profits have to stay below that amount.”
The new tax law now provides for a flat 21 percent tax rate for corporations.
“That caused a lot of businesses to increase their profitability by 21 percent,” Vento said.
Which makes many industry experts optimistic about the future of the economy.
“This tax bill is 100 percent what it promised to be,” Vento concluded. “Small business in particular will benefit from these changes, and there should be a resulting increase in jobs. I think this tax law does a phenomenal job of motivating the economy.”
Allan Katz, president of Comprehensive Wealth Management Group in Tottenville, agrees.
“In regard to how this tax bill will affect the economy, many pundits cite past tax reform that ended up creating more saving for the wealthy and didn’t actually pour money into the economy,” Katz noted.
“I believe this is different in the sense that many lower-income households will see a lower tax bill, effectively increasing their take home pay. Most of these households will spend that money almost immediately on both necessity and a bit of well-earned luxury like a dinner out or small vacation. Potentially, this will put the money right into the economy and help the economy grow, which would in turn create jobs, which would in turn create a larger base of tax payers, which clearly leads to higher tax revenues for the government.”
Katz says while businesses will be challenged by some of the new deduction changes, they will learn to adapt.
“People will have to adapt how they spend in their business,” Katz concluded. “The entertainment deduction might be gone, but businesses will now find other means to spend those dollars — like advertising or educational seminars. It will be a challenge, but they will learn to watch their spending and adjust accordingly.”