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BizReport : Law & Regulation : March 27, 2018

Expert: What US SMBs need to know about new tax bill

Tax day is right around the corner, and new tax provisions may catch some small businesses unawares. Here's what business owners need to know.

by Kristina Knight

Kristina: What, in your opinion, do SMBs not fully understand about the new tax provision?

Jeff Somers, President, Insureon: Tax codes and bills are notoriously difficult to understand. While it's not necessary for small business owners to understand every nuance and caveat included in the new bill, they should be aware of a few basics of the provision - including the changes to pass-through income.

Under the new law, up to 20 percent of a pass-through business's net income can be deducted from taxes. That's good news for most business owners since 95 percent of companies are pass-throughs. This includes sole proprietorships, partnerships and S-corporations that don't pay corporate taxes because the owner - not the business - is subject to income tax.

However, not every small business owner will be able to deduct 20 percent. In order to qualify for the full deduction, your taxable income must be below $157,500 if you're single or $315,000 if you're married and file a joint return. If your income is above that threshold you will still be able to deduct a portion of your net business income, just not the full 20 percent. With that said, the average yearly income for small business owners is $75,970, which mean a large number of small businesses will be able to take the full deduction.

Kristina: What impact will this tax provision have for SMBs?

Jeff: Since the majority of small business owners will qualify for the full 20 percent deduction - or at least a portion of that amount - the tax bill will have a positive impact in that it's putting extra cash in owners' wallets. However, instead of saving the money for a rainy day many owners are planning on reinvesting it back into their businesses according to a new joint poll from Insureon and Manta.

Of the 83 percent of small business owners who said they expect the tax plan to have a positive impact on their businesses, 38 percent of respondents say they will use the extra money to hire additional employees while 28 percent of respondents plan to invest in new technology or research and development. Twenty-six percent will use their savings to offer new services, while 21 percent will expand an existing space or open a new location.

Kristina: How can SMBs ensure they are prepared for this?

Jeff: As businesses change, their insurance needs often evolve as well. To ensure they're prepared to take advantage of tax savings to grow their business, small business owners may need to adjust their insurance coverage. While almost all small businesses can benefit from a general liability policy, they may need to add new policies or increase coverage limits on others depending on what changes they anticipate making to their business.

For instance, if a small business owner uses his or her tax savings to hire employees, they may need to purchase workers' compensation coverage depending on the laws in their state. Business owners expanding their service offerings should consider purchasing or updating their professional liability insurance policy, while business owners expanding or moving their office or purchasing new equipment will likely need to update their commercial property insurance.

Even small businesses that are downsizing should reevaluate their coverage. For example, if a business reduces its workforce, the workers' compensation policy should be updated to reflect the current number of employees on staff.

Tags: Insureon, small business tax, SMB tax tips, SMB tax trends, tax season 2018, tax tips

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