H.R.1, aka the Tax Cuts and Jobs Act, passed, and it means some sweeping changes for businesses.
Now I’m not going to comment on the other aspects of the bill, like Health Care, bracket changes for individuals, how much it means to a family of four, and similar. You can find strong opinions on that everywhere online, with the requisite arguing back and forth in the comments.
What I will comment on are two fairly important aspects that will help businesses, plus one of my favorite pieces of the tax code got a nice lift (take a guess what I’m talking about…).
First up is the Corporate Tax Rate, which was cut an astonishing 14%, representing the largest one time cut in history. The new corporate tax rate is 21%, and it’s going to make a big difference to a lot of companies, especially larger companies who employ hundreds and thousands of people. I know it’s popular to rail against corporations, but you won’t find me doing that – they are massive employers, they buy and sell countless goods and services, and if they suffer, the economy as a whole will suffer.
Second is the nod to small and medium businesses. The bill allows owners of “pass-through” companies (which comprises roughly 95% of American businesses – S corporations, LLCs, partnerships and sole proprietorships) to deduct 20% of their pass-through income. This begins to phase out at $315,000 for married couples and $157,500 for individuals. There are also some provisions limiting service based businesses like investment and law firms.
A little commentary, if I may. Again, it’s popular to bash the above as lining the pockets of the wealthy. But if working with small and medium sized businesses has taught me one thing, it’s this: if you allow a typical business owner to keep more of the money the business earned, invariably it will be reinvested in the business. Some do this by buying equipment (and I see a ton of that), others will update their website or their store, still others will move to a better location, and maybe some others will take on a talented employee they could not previously afford.
Contrary to the hype, what business owners by and large do not do is hoard money. They spend it instead.
Oh, and my favorite part of the tax code, Section 179, gets a nice boost, going from $500,000 to a cool $1 million! And the “total equipment purchased” cap is increased from $2 Million to $2.5 Million. Sweet!
Whether the tax bill is good for everyone over the long term is open to debate, but the positive implications for business are undeniable.