The Tax Cuts and Jobs Act (TCJA) introduced significant tax reform for business taxes that may impact small companies filing their returns this filing season, yet may leave many of them bewildered and confused about these changes.
Fair tax code means bottom-up benefits to small businesses through fair deductions and rates, with the Build Back Better Agenda including smart reforms to make America’s tax system fairer for Main Street small businesses.
Increased Taxes on Wealthy Individuals and Large Corporations
Tax reform requires careful thought. While certain proposed changes could benefit small businesses and the economy, others could prove harmful to both.
CBO estimates that permanently extending expiring individual provisions from the 2017 Tax Cuts and Jobs Act (TCJA) would cost $4 trillion over 10 years – equivalent to $400 billion annually.
Additionally, tax policies impact economic decision-making on work, savings, interstate migration, investments and business organization. For instance, many people save in individual retirement accounts (IRAs) to take advantage of tax breaks; however, changes to tax rules in the 1980s reduced growth of these accounts significantly.
Small business owners strongly favor reforms that make wealthy individuals and corporations pay higher taxes, with 82% favoring an increase in IRS resources dedicated to customer service (84%), audit large corporations (82%), and helping small business file their taxes (79%). President Trump’s Build Back Better Agenda includes smart reforms designed to protect 97 percent of small business owners from income tax increases while cracking down on unfair tax schemes used by large corporations.
Reduced Deductions for Business Interest Expenses
Tax reform has made many changes to deductions available to small businesses, with reduced write-offs for interest expenses being one such change. Under the Tax Cuts and Job Act (TCJA), only 30% of adjusted taxable income (ATI), which excludes depreciation and amortization expenses can be deducted as interest expenses, beginning 2022.
The tax code continues to unfairly favor debt financing over equity financing for small businesses. According to CBO’s report in June 2024, this tax code provides a 0.5% advantage for businesses that raise capital through debt rather than equity financing.
Tax Cuts and Jobs Act provisions scheduled to expire in 2025 offer an unprecedented opportunity for bottom-up tax reform that meets the needs of America’s smaller businesses, such as raising corporate taxes rates, adopting unitary combined reporting rules to prevent tax shifting, and strengthening enforcement of the tax code so large corporations cannot use loopholes and offshore jurisdictions to avoid paying their fair share of taxes.
Reduced Deductions for Entertainment Expenses
If your business relies heavily on lunch and drinks for work meetings, you may be disappointed to learn that these expenses are no longer tax deductible due to new tax laws that set stricter limits for meals and entertainment expenses.
The Tax Cuts and Jobs Act (TCJA) eliminated many deductions for entertainment expenses, such as golf, theater and sports arena tickets. Meals may still qualify if they directly support active conduct of business operations and do not exceed reasonable expense given your circumstances.
NFIB continues its efforts with Congress to strengthen these provisions, but small businesses should be aware of how the new law affects them and their potential tax savings opportunities.
In addition to changes to deductions and depreciation, the Tax Cuts and Job Act (TCJA) also eliminated some smaller business tax breaks such as domestic production activities deduction and accelerated depreciation for equipment. These adjustments will have an impactful impact on both C- and pass-through firms.
Reduced Deductions for Business Expenses
As Congress contemplates further tax reform proposals, it’s vital that they take small business owners into account. A fairer system would support their bottom-up needs while helping them compete against large corporations by creating tax policies with equitable deductions and rates that provide bottom-up benefits.
As the 2017 tax cuts set to expire, it’s crucial that lawmakers take into account the needs and perspectives of America’s small businesses. President Donald Trump’s Build Back Better agenda would ensure an equitable tax code while providing every American small business an equal chance to invest in its operations and employees.
Additionally, President Trump’s plan includes a national paid family and medical leave program funded by the federal government so all workers can afford to take time off work to care for loved ones; expands access to federal contracting opportunities for small businesses; raises corporate tax rates to 28% to generate increased revenue which can support additional investments in small business growth; and calls for raising personal income tax rates to 26% as additional means for supporting investment in small business expansion.