by Daniel Kittell | Accounting News, Business Growth, News, Newsletter, Small Business
Small businesses are finally seeing signs of life after a rocky few years. Since January, average earnings have climbed by 75%. That’s an encouraging statistic, yet monthly revenues still lag behind the record highs of the past two years. This signals that progress is happening, but it’s not yet a full recovery. Read on as we go over what’s behind this upswing.
Tariffs: A Double-Edged Sword
Trump’s motive for implementing tariffs is to protect American manufacturing, but for small businesses that rely on imports, it’s been a mixed bag. Materials and products often cost more, which narrows already-slim margins. Some businesses have had to raise prices, cut expenses, and renegotiate supply agreements just to stay competitive.
How businesses are coping:
- Renegotiating contracts with suppliers
- Passing modest price increases to customers
- Narrowing focus to their most profitable products
While companies are being resourceful, uncertainty around future trade policy means small businesses are remaining cautious.
The One Big Beautiful Bill Offers Stability
The newly passed One Big Beautiful Bill provides some long-term stability by making small business tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA) permanent. Until now, uncertainty loomed over whether those tax benefits would expire, which threw a wrench into long-term planning for small businesses.
Why the permanence of the TCJA tax cuts matters:
- Owners can plan investments with more confidence
- The law simplifies the tax code, leaving fewer surprises
- The law also reduces compliance requirements, saving time and energy
These changes won’t automatically boost sales, but they do give business owners a more stable and predictable foundation to work from.
Interest Rate Cuts Predicted
Economists expect at least one rate cut this year. If that happens, borrowing could get less expensive for small businesses. Lower rates would lower the cost of financing new equipment, pursuing expansion opportunities, or even short-term cash-flow needs during slower seasons.
If rates are cut as expected, the combined benefits of cheaper financing, permanent tax relief, and the earnings growth seen since January could help propel recovery into 2026.
Balancing Optimism with Caution
The 75% jump in earnings since January is a great sign, but small businesses still face challenges, especially with high supply costs, persistent labor shortage, and unpredictable global markets. And if inflation rises or trade tensions flare up, consumers could start spending less.
Even with tariffs and ongoing uncertainty, the 75% earnings statistic indicates the resiliency of small businesses. By staying flexible, diversifying revenue sources, and preparing to adjust as needed, many small businesses are not just navigating the recovery process but also positioning themselves for growth opportunities.
by Stephen Reed | Accounting News, News, Newsletter, Tax, Tax Planning
After Donald Trump’s win in November, taxpayers are wondering how a second Trump term could reshape U.S. tax policy. Trump’s first term saw sweeping changes under the Tax Cuts and Jobs Act (TCJA) of 2017. With key provisions of that legislation set to expire in 2025, Trump’s proposals offer a glimpse of his tax priorities. From significant individual tax cuts to business-friendly policies, here’s what you need to know.
The Expiration of the 2017 Tax Cuts
The TCJA lowered tax rates across the board, nearly doubling the standard deduction—which eliminated the need for itemized deductions—and capping the state and local tax (SALT) deduction at $10,000. These changes contributed to lower tax bills for many Americans. However, the individual tax cuts were temporary and are set to expire at the end of 2025 unless Congress acts to extend them.
If re-elected, Trump has indicated that extending or making these provisions permanent would be a top priority. Without an extension, taxpayers could see higher marginal tax rates, a reduced standard deduction, and the return of personal exemptions.
Removing the $10,000 SALT Deduction Cap
The SALT deduction, which allows taxpayers to deduct state and local taxes on their federal tax returns, became a testy issue after the TCJA imposed a $10,000 cap. This change particularly affected residents in high-tax states like New York, California, and New Jersey.
Trump has proposed removing the cap, a move that would benefit taxpayers in those states while potentially increasing the federal deficit. Critics argue that eliminating the cap would disproportionately benefit higher-income households, but supporters see it as a necessary adjustment to provide relief to middle- and upper-income earners in high-tax areas. Steven Moore, a senior economic advisor to Trump, recently floated the idea of doubling the cap to $20,000 as a potential compromise.
Eliminating Taxes on Social Security and Tip Income
Currently, up to 85% of Social Security benefits can be taxable, depending on your income level. Trump’s tax plan consists of eliminating these taxes, which would provide retirees with additional financial security. Trump has also floated the idea of eliminating taxes on tips, which would increase take-home pay and simplify tax compliance for hospitality and service industry workers. However, this proposal has sparked discussion over the potential impact on tax revenue and fairness in the tax code.
Reducing the Corporate Tax Rate
The TCJA decreased the corporate tax rate from 35% to 21%, which rendered the U.S. more competitive globally. Trump has suggested lowering the rate even more, potentially to 15%. Those in favor of this plan say that it could spur economic growth and encourage domestic investment, while critics are concerned about increasing the federal deficit.
Trump’s Tariffs
Trump has been clear on his stance on tariffs. During his first term, Trump imposed tariffs on various goods, particularly from China. Tariffs are not taxes in the traditional sense, but they can indirectly affect taxpayers by increasing the cost of goods and services. Businesses often pass these costs onto consumers, so households, particularly those in middle- and lower-income brackets, could feel the strain of tariffs.
by Jean Miller | Accounting News, News, Newsletter, Small Business, Tax
A crucial tax benefit for businesses is on the verge of expiring. The Qualified Business Income (QBI) deduction, a significant component of the 2017 Tax Cuts and Jobs Act (TCJA), is set to end on December 31, 2025. Read on as we go over how this deduction works and how its impending expiration could affect small businesses.
What is the Qualified Business Income (QBI) Deduction?
The Qualified Business Income (QBI) deduction, introduced by the TCJA, allows eligible small business owners to deduct up to 20% of their qualified business income from their taxable income. This deduction is available to individuals who own pass-through entities, such as sole proprietorships, partnerships, S corporations, and some rental property owners.
How Does the QBI Deduction Work?
To qualify for the QBI deduction, business owners must meet several criteria:
- Type of Income: The deduction applies to income earned from a qualified trade or business, excluding investment income.
- Income Limits: For 2024, the QBI deduction begins to phase out for single taxpayers with taxable income over $191,500 and for married couples filing jointly with income over $383,900. Beyond these thresholds, the deduction may be subject to limitations based on wages paid and the value of qualified property.
- Specified Service Trades or Businesses (SSTBs): If a business falls under SSTBs—such as those in health, law, or consulting—the deduction may be limited or unavailable if the taxpayer’s income exceeds certain thresholds.
The QBI deduction also excludes capital gains or losses, dividends, interest income, and income earned outside the United States.
How Could the Expiration of the QBI Affect Your Small Business?
Let’s say you’re a small business owner who earned $150,000 this year. Without the QBI deduction, you’d be taxed on the full amount, minus any other eligible tax credits. Based on the current tax brackets, a single filer would fall into the 24% tax bracket for income between $95,375 and $182,100. Thus, you’d end up paying 24% on a portion of your income, totaling $36,000 in taxes.
With the QBI deduction, you can reduce your taxable income by 20%. This means instead of being taxed on $150,000, you’d only be taxed on $120,000. Despite remaining in the same 24% tax bracket, your tax bill would decrease to $28,800, which translates into a savings of $7,200.
For businesses with larger earnings, the benefits are even more substantial. Suppose your business earns $600,000 in income. Without the QBI deduction, you’d be taxed on the entire $600,000. At a 35% tax rate for single filers with this level of income, you’d face a tax bill of $210,000.
Applying the QBI deduction allows you to reduce your taxable income to $480,000. This adjustment results in a tax bill of $168,000 at the same 35% tax rate. Therefore, the QBI deduction saves you $42,000 in taxes each year. For high-earning businesses, such deductions can lead to significant tax savings.
The Impending Expiration and Its Impact
Unless Congress extends or modifies the QBI tax provision, it will expire at the end of 2025, and business owners will no longer benefit from this valuable tax break. The impact on small business owners could include:
- Increased Tax Liability: Without the 20% deduction, business owners will face higher taxable income, leading to potentially higher federal income taxes. For many small businesses, this could mean a substantial increase in their overall tax burden.
- Strategic Tax Planning: Business owners should consider how the expiration might affect their long-term tax strategy. The loss of this deduction may impact decisions related to business expansion, compensation structures, and other financial planning aspects.
- Legislative Uncertainty: The fate of the QBI deduction is still subject to legislative changes. While there is potential for an extension or modification, business owners should prepare for the possibility that the deduction may not be available beyond 2025.
Preparing for the Change
Given the potential tax increase, small business owners should take proactive steps:
- Consult a Tax Professional: Tax advisors can help navigate the complexities of tax planning in light of the impending expiration. They can offer strategies to mitigate the impact and prepare for future changes.
- Review Financial Projections: Business owners should analyze how losing the QBI deduction will affect financial projections and budgeting, and adjust business strategies accordingly.
- Stay Informed: Keeping current with legislative developments and changes in tax laws will help you adapt your financial plans effectively.
by Pete McAllister | Accounting News, Bookkeeping, Business Consulting, IRS, News, Professional Services, Retirement, Tax, Tax Planning
With additional guidance and regulations released consistently since President Trump signed the Tax Cuts and Jobs Act of 2017 into law, one thing remains clear: strategic tax planning is key to lowering a business’s total tax liability. Read on for some moves on lowering your 2019 business tax bill.
Establish Tax-Favored Retirement Plan
Current tax rules allow for significant deductible contributions, so if your business doesn’t already have a retirement plan in place, it’s worth considering. Small business retirement plan options include 401(k), SEP-IRA, SIMPLE-IRA, and the defined benefit pension plan. Some of these plans can be established up until December 31 and allow for a deductible contribution for the 2019 tax year, except for the SEP-IRA and SIMPLE-IRA, which mandate a set-up deadline of October in order to make a contribution for the same year.
Review Your Reports
The end of the year is typically a time for businesses to begin goal setting for the next year, so it’s crucial to have a firm grasp on how your business performed financially this year. Make sure your books are up to date and accurate so you have a clear picture before diving into next year’s plan.
Defer Income If It Makes Sense
Depending on where your income level is, you can potentially cut your tax bill by postponing any end-of-the-year income until January 1 or later. Ask your accountant if shifting receivable income to the new year makes sense for your business.
Purchase Business Essentials to Take Advantage of Deductions
Upgrade equipment and furniture, stock up on office supplies, take care of repairs, and make vendor payments in advance in order to maximize deductions. And thanks to the TCJA, you can claim 100% bonus depreciation for qualified asset additions that were acquired and put in place in 2019.
Make Charitable Contributions
Tis the season for giving…and claiming a deduction for the fair market value of your donations. In addition to money, think outside the box and contact a program that sponsors families for the holidays. They often need food, bedding, toys, cookware, and clothing. It’s a great way for employees to feel like they’re making a difference too. Just don’t forget to get the necessary documentation and receipts to keep with your records.
Start Preparing for Next Year
If you put these tips into action, you’ll be better prepared at this time next year. For instance, you’ll already have a retirement plan in place. By going through the process of tax preparation this year, you have the opportunity to create systems for organization that will expedite the process next year.
by Jean Miller | Accounting News, Construction, Estate Planning - Individual, IRS, News, Tax Planning - Individual
As the values of homes around the country continue to rise, as well as the cost of rent, home ownership looks more and more appealing. In the past, homeowners have been able to deduct certain expenses on their tax returns. Yet, with the Tax Cuts and Jobs Act of 2017 (TCJA), homeowners may no longer qualify for the deductions that were once beneficial in homeownership. Did you know that TCJA is the biggest tax overhaul seen in the USA in 30 years? If you’re curious about how this might affect homeowners, here are highlights of the federal tax deductions for homeownership under the TCJA.
Even with an increase in the standard deduction this year, many homeowners will continue to see some tax relief. While there will be a decrease in available itemized deductions, a few items that have been deductible in the past may still benefit taxpayers this year and beyond. Deductions such as home mortgage interest, state and local property taxes, and amounts paid at closing continue to be likely deductions while filing in 2019. We recommend you consult with one of our tax professionals to ensure that you are maximizing your tax savings as a homeowner. You can also consult the IRS Publication 5307 here.
- Mortgage Interest Deduction – According to the TCJA, taxpayers can deduct mortgage interest paid on acquisition indebtedness up to $750,000. This deduction can also apply to a second property, so long as the indebtedness does not go above the $750,000. Home equity indebtedness is still deductible as long as the proceeds are used to buy, build, or improve the taxpayer’s home that secures the loan.
- Mortgage Insurance Deduction – When a homeowner chooses not to or is not able to put down 20% or more in a downpayment, primary mortgage insurance (PMI) is required to protect lenders. As of now, certain amounts paid until the end of 2017 remain deductible. Congress is still deciding whether this deduction will be permanently eliminated.
- State and Local Taxes – Taxpayers are now limited to a $10,000 itemized deduction for combined state and local taxes. Homeowners in states with high property and income taxes will face the most impact with this deduction limitation.
- Amounts Paid at Closing – Origination fees, loan discounts, or prepaid interest are not usually deductible in the year that they are paid, but instead over the life of a home loan. However, they may be currently deductible if the loan is used to purchase or improve the home and if that home also serves as collateral for the loan.
Despite the new tax changes under the TCJA, it’s unlikely to be the deciding financial factor for those who have already bought a home or are considering homeownership in the future. Some buyers may consider homeownership less attractive, which could result in lower home values and lower markets over time. According to Nolo, it is estimated that the tax benefits of owning a home will be less than in years past, putting many homeowners in the same place as renters. At this time, there is no clear-cut solution that results in the best solution for homeowners, but with the right financial planning from our CPAs, homeowners can find the best ways to maximize their tax savings and cash flow.
