Are You Talking to Your Business Clients About Tax Reform?

According to a survey by the National Association of the Self Employed, 83 percent of small business owners feel as though they don’t understand how the Tax Cuts and Jobs Act will impact their business. Being able to translate precisely how the law will affect them, and the actions they need to take moving forward will help reassure them they are in good hands. That’s exactly why we’ve compiled a few helpful talking points.

Freelancers, Sole-Proprietors, and Small Businesses See A Boost 

One of the biggest beneficiaries of the new tax law is S-Corps, Sole-Proprietors, and Individual Freelancers, who will see a 20 percent reduction for those who make below $157,500 for singles (or, $315,000 married filing jointly).

With  popular gig economy jobs such as Uber, Lyft, and Taskrabbit rising in popularity, this law was welcomed by the self-employed.  For most of the individual or small businesses you deal with, this is great news; however, if your client is an entrepreneur who performs a service (i.e. a doctor or lawyer) who makes above the $137,500 mentioned above, they will be subject to some limitations.  Still, even with its limitations, the potential lower tax obligation for the independent business owner is a huge win.

Transitioning Business Structure

Due to the recent  changes in how business entities will be taxed, it’s important to talk to clients about the pros and cons of changing their business structure. There are a lot of stipulations and loopholes surrounding the tax liabilities for C-Corp and Pass Through so reviewing each client’s specific tax situations will be important. Accounting Today has a great overview of many considerations businesses should consider.

Like-Kind Exchanges

This part of the law limits nonrecognition of gain rules on exchange of business property It’s only allowed for real property, not held primarily for sale.  In the past, like-kind exchanges were allowed for most properties that were “alike” in nature.

Net Operating Loss (NOL)

Previously, NOLs were eligible for a 2 year carryback and 20 year carryforward. The amendments to section 172 disallow the carryback of NOLs but allow for the indefinite carryforward of those NOLs. The act also introduced a limitation to 80% of a taxpayer’s pre-NOL deduction taxable income.

Fringe Benefits

Parking, transit passes, and bicycles are not deductible by employers but not includable in employee income.

We’ve only begun to scratch the surface on the highlights of the Tax Cuts and Jobs Act. There are still regulations on the state level you should be on the lookout for. Don’t be surprised if you find other client-specific regulations that have changed. Although that’s the nature of the business, the Tax Cuts and Job Act was a major overhaul that a lot of tax experts are still digging through. Take some time to consider each of your clients and how they might be affected and be sure to reach out with advice proactively.