Small businesses will see no major tax code changes in 2020, but due to the 2017 Tax Cuts and Jobs Act there are two changes to be aware of: first-year bonus depreciation and deductions for pass-through entities, according to local accountant Amber Winter.
Pass-through entities will continue to receive a 20 percent deduction and corporate entities can expect to see a lower tax rate in 2020, Winter said.
Pass-through entities have a special business structure used to avoid double-taxation and would include Limited Liability Companies (LLC), Sole-proprietorships, Partnerships and S-Corporations. C-Corporations will continue to see a lowered 21 percent tax rate (previously at 35 percent in 2017), depending on the industry. The idea behind this cut is to encourage major corporations back into the U.S. and to assist with lowering the unemployment rate.
In 2017, Congress also made first-year bonus depreciation for businesses 100 percent deductible. What does this mean exactly? It means a business can write off the entire amount of eligible assets, like machinery and property, at one time instead of writing off a portion of the cost, amortized over many years. In theory, this allows businesses to put that money back into their company and/or hire more employees.
Finally, if your business is set up as an S-Corporation or Partnership, you must file your tax return or an extension by March 15, which would extend the deadline to Sept. 15.
“Always file an extension if you won’t be filing by these due dates, “Winter said. “The penalty for failing to file a return or an extension is quite substantial and you want to avoid that at all costs.”
If you are unsure how to keep up to date or are uncomfortable in deciphering what tax codes mean, Winter recommends seeking out a reputable accountant like an Enrolled Agent (EA) or Certified Public Accountant (CPA).
“Ultimately, it is very important for every business owner to stay up to date on current tax laws so you pay exactly what you owe and not a penny more,” Winter said.