Last year ended like a whirlwind and we’re still getting used to crossing out 2017 on our personal checks and replacing the date with 2018. Yet we shouldn’t overlook the significance of the Tax Cuts and Job Act bill which passed the U.S. House and Senate, then was signed into law by President Trump on Dec. 22. At a glance, it includes $1.4 trillion in tax cuts designed to spark business investment and subsequently benefit additional hiring and wage growth. But if you’re a budding entrepreneur looking to go the franchising route, what exactly will it mean to your future small business? Here’s a breakdown of benefits:
Updated Tax Rates on Small Business Profits
Businesses which classify themselves as C corporations will see a maximum tax rate of 21 percent beginning in the 2018 calendar year. Business owners of pass-through entities—of which include sole proprietorships, partnerships, limited liability companies, and S corporations—will now be able to claim a 20 percent deduction of their pass-through business income, however some limitations apply. You should always check with a certified accountant or tax-preparer for an accurate assessment.
Work Opportunity Tax Credit
If employers, including franchisees, hire staffers from specific targeted groups, they will become eligible for a Work Opportunity Tax Credit (WOTC). Defined, these targeted groups include disenfranchised individuals who might otherwise face certain barriers in seeking gainful employment. What this tax credit does is reduce the tax liability at a rate of $1,200 up to $9,600 per employee, depending on several factors, the least of which includes the actual number of hours worked per week.
Equipment Expenses for Small Businesses
The dollar limit for being able to expense equipment purchases will now be considerably increased. The updated rate will now be $1 million beginning in 2018, almost doubling the previous amount from 2017 rules. In addition, bonus depreciation now doubles from 50 percent to 100 percent for any and all property purchased and put into use after Sept. 27, 2017.
The franchise industry is certainly applauding the first overhaul to the tax code in over three decades. The International Franchise Association (IFA) came out with a strong statement of support, credited to its president, Robert Cresanti:
“We applaud Senate Leadership and the Finance Committee members for listening to the concerns of business owners and working to ensure small businesses see tax relief. For years, the burdensome and complex tax code has held back small business owners and stifled new investments. With two-thirds of new jobs being created by small businesses and 80 percent of franchises filing as pass-through entities, important changes were made in the final days for these franchise small businesses."
Change is definitely in the air in 2018 and the Tax Cuts and Jobs Act will play a large part in what our government believes is a catalyst for strong and sustained economic growth. If you’ve been planning a pathway to becoming your own boss, the landscape and environment of operating a small business or franchise just got a lot friendlier.
If you’d like to talk specifics, call us or make an appointment with one of our certified franchise specialists. We can begin our journey together at a time when small businesses are primed for future success.
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