Small Business Taxes

What can the Small Business Administration do for your business? Probably more than you imagined! Click through for an introduction to the SBA and the many programs it offers to businesses like yours.

How can the Small Business Administration help you grow your business? Take a quick look at how the SBA works.

First, note that the SBA has a pretty wide definition of what is meant by “small.” You don’t have to be a mom-and-pop operation to take advantage of SBA loans. The cutoff limits vary by industry, but it’s possible to have hundreds of employees and still be eligible for SBA assistance.

However, there are four criteria all businesses must meet to obtain an SBA loan: They must be a for-profit business, they must do business in the U.S., the owners must have invested their own time or money in the business, and they must have exhausted all other financing options.

How does the SBA loan program work? The SBA doesn’t provide loans directly. If you need a loan, ask your lender whether it works with the SBA, or use the SBA to help connect with lenders. It means more paperwork and time to get an SBA loan guarantee, but getting the SBA involved can make the difference between getting the loan or not. You can connect with SBA lenders through the SBA Lender Match program. This speeds up the lending process.

There are multiple SBA loan programs. A basic loan program can help existing businesses and startups. These are flexible loans that can be used for lots of business purposes, including for working capital. There is also a special series of loans for property and equipment for businesses in specific areas targeted for development. The SBA also offers an array of special loans for veterans.

The SBA can provide disaster assistance to help small businesses that were hit by disasters — physical and economic assistance. For example, the SBA can provide loans to self-employed business owners who’ve lost their jobs due to disaster.

Help Beyond Loans

The SBA also offers, in partnership with other agencies, grants for research and development. The goal is to encourage businesses to do research that has the potential for commercialization. Some grants are for businesses run by socially and economically disadvantaged persons.

In addition, the SBA can help businesses get through the complex process of competing for government contracts; the SBA aims to level the playing field. After all, many government agencies require that some percentage of their purchases be set aside for small businesses, and you may be able to get in on these contracts.

Women and minority business owners can get specific assistance. The Office of Women’s Business Ownership provides help to women starting and running small businesses. Minority business owners, disabled and disadvantaged business owners, and immigrant and foreign national business owners can get special loans and help to start businesses.

The SBA also partners with SCORE, a network of volunteer expert business mentors with more than 10,000 volunteers in 300 chapters. You can find individual help for launching new companies or divisions and for business plan writing and marketing, for example.

Now that you see all that you can garner from the SBA, you may decide to visit your local SBA office to see what services and training are available in your area.

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December’s tax reform law effectively reduces taxes for many small businesses. It also creates some new complications. Here are the highlights.

Corporate tax rates are cut.

The graduated corporate tax structure has been replaced by a flat rate of 21%. This represents a significant rollback for corporations in the former top 35% bracket. Of particular note to owners of closely-held C corporations: the new law repeals the corporate alternative minimum tax and makes the simpler cash method of accounting available to more corporations.

Owners of “pass-through” entities gain a new deduction.

The legislation creates a new deduction for 20% of business pass-through income. This deduction is available to owners of almost any type of trade or business whose taxable income does not exceed $315,000 (joint return) or $157,500 (other returns). Above those amounts, the deduction is generally limited to the greater of:

• 50% of W-2 wages paid by the trade or business, or
• The sum of 25% of W-2 wages paid plus 2.5% of the original cost of tangible, depreciable assets used in the business.

When the business has more than one owner, the owners use their allocated shares of wages and assets in computing the limitations.

Different restrictions apply to individuals in certain service businesses (e.g., law, medicine, and accounting). For those individuals, the ability to take the deduction is reduced with taxable income between $157,500 and $207,500 ($315,000 and $415,000 on a joint return) and is unavailable once taxable income reaches the top of the applicable range.

The taxable income thresholds will be adjusted for inflation after 2018, and the 20% deduction is scheduled to expire after the 2025 tax year.

Depreciation and expensing provisions are more generous.

• Bonus depreciation percentage increases from 50% to 100%. Businesses may deduct the full cost of qualifying property acquired and placed in service after September 27, 2017, and before January 1, 2023 (before January 1, 2024 for certain property). Unlike under prior law, the property does not have to be new — used property can also qualify. Starting in 2023 (2024 for certain property), the deduction is gradually scaled back, and it sunsets after 2026.
• Section 179 expensing limit increases from $500,000 to $1 million. The law doubles the annual expensing limit and raises the investment threshold over which the deduction begins to phase out to $2.5 million. These new limits will be adjusted for inflation after 2018. The new law also makes the Section 179 expensing election available for more types of property, including certain improvements to nonresidential real property.
• Auto depreciation limits increase more than threefold. The new annual caps are generally effective for business autos placed in service after 2017.

Other changes could have an impact.

• The deduction for business entertainment expenses is repealed, effective for expenses paid or incurred after 2017.
• The costs of certain employer-provided transportation fringe benefits, such as transit passes, are no longer deductible, also effective for expenses paid or incurred after 2017.
• For the 2018 and 2019 tax years, employers that provide paid family and medical leave may claim a credit for a portion of the expense (requirements apply).
• The domestic production activities deduction is repealed, effective for 2018 and later tax years.

These are just highlights of some of the changes included in the Tax Cuts and Jobs Act of 2017. Please consult a qualified tax advisor for more detailed information about how the law’s provisions may apply to your business and personal tax situation.

Source/Disclaimer:

This communication is not intended to be tax advice and should not be treated as such. Call our Memphis, TN CPA now at 901-685-9411 to find out how we can decrease your tax obligations. We offer a free initial consultation to new clients so contact us today.