If you've hesitated to invest in new equipment (or employees) for fear of potential tax hikes or other financial obstacles for your small business, you may be interested in what the incoming administration will mean for your finances. However, even prior to the 2016 election, there were some tax changes in store -- many designed to benefit business owners and entrepreneurs. In addition to these already scheduled changes, President Trump has proposed a few tax changes that could dramatically affect the way you and your fellow business owners are assessed taxes on your sales and profits. Read on to learn more about the changes 2017 will bring for your business's income taxes.
What business tax changes are scheduled to come down the pike in 2017?
If you've been known to take advantage of the Section 179 capital deduction in the past, you may be excited to hear that the total allowable deduction amount has increased by $10,000 (to $510,000). This deduction allows you to take a single up-front deduction for the cost of certain capital equipment (anything from office furniture and computers to company vehicles and manufacturing equipment) as an alternative to depreciating this equipment over the course of years. There are a few types of capital assets and improvements that won't qualify for a Section 179 deduction, including heating and air conditioning equipment, improvements to land (like paving a parking lot or erecting an outbuilding), or the purchase of land itself.
Businesses that spend more than $2.03 million on Section 179 equipment may find their tax break reduced by the amount spent in excess of this amount. However, even once your business hits this cap, you should still be able to depreciate the equipment according to the normal schedule, spreading out your tax benefits over time for these expenses while claiming them immediately for the full amount under the cap.
Another prospective change that could be coming under the Trump administration is the slashing of the maximum corporate tax rate to 15 percent across the board (from its current 35 percent). This could have a major effect on businesses of all sizes, from small businesses that run on thin margins vulnerable to fluctuations in foot traffic to multinational corporations that do business across the globe. By cutting this tax rate, the federal government hopes to encourage business owners to reinvest these extra funds into their business, expanding their workforce and purchasing extra equipment to improve efficiency.
What should you do to maximize the benefit of these changes?
One of the hallmarks of a business that can stand the test of time is the ability to rapidly adapt to changes in both the marketplace and the financial realm. This means that poising yourself to take advantage of the already-announced tax changes, as well as those likely to transpire under the Trump administration, can significantly impact the proportion of your business's profits that remain in your coffers. On the other hand, waiting until after suggested changes have been enacted into law to shift your own business practices accordingly could leave you feeling as though you missed the boat.
If you're considering purchasing some Section 179-eligible equipment for your business, there's no better time than the present -- this increase in the amount that can be deducted is a change that is relatively set in stone for the 2017 tax year. Deducting these equipment costs up front while enjoying the benefit of a potentially much lower corporate tax rate could make it a banner year for your business, allowing you to invest in even more inventory or aggressively pay down the debt you've incurred since launching this venture.
Share10 January 2017
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