The Donald Trump tax plan brings a slew of new deductions, new tax credits, and tools that small business
owners can take advantage of to reduce their tax burden.
Decreased Corporate Tax Rate for C-Corps
Perhaps the most widely debated change is that the Donald Trump tax plan cuts the corporate tax rate. Under the Tax Cuts and Jobs Act, C-corps are
taxed at a flat rate of 21% -- a cut from the previous range of 15% - 35%.
How does a change in the corporate tax rate impact small businesses, especially if this tax break applies
specifically to C-corps?
While this is a high profile component of Trump’s tax plan, most small businesses aren’t structured as
C-corps. The majority of U.S. small business are pass-through entities, such as LLCs or S-corps. So,
although some small businesses are affected, this change mostly impacts Fortune 500 companies rather than
That does mean, however, that these businesses might be affected by the new pass-through deduction. The
main difference that distinguishes a pass-through entity from a C-corp is how taxation is handled (hence,
why we’re talking about it). So, rather than paying income taxes as a totally separate entity, the
pass-through entity passes the profits and losses through to the owner. The business owner then reports that
as personal income. (See, it’s passed through.) In that way, as the government sees it, the finances
of the owner and the business are pretty intertwined.
The absolute biggest thing you need to know is that under the Trump tax plan, small businesses that are
filing as pass-throughs can take a 20% business income deduction .
To qualify for this 20% deduction, business owners must have a taxable income of below $157,500 if single
or $315,000 if married and filing jointly. So, if your business is structured as a sole proprietorship,
partnership, LLC, or S-corp, you could qualify for this pass-through deduction of 20%.
The deduction doesn’t lower your adjusted gross income, and you aren’t required to itemize on your taxes in
order to take it. If you do qualify, a 20% deduction will be applied to whichever is lower—your qualified
business income (the ordinary income of the business), or your taxable income minus capital gains.
A much simpler way of putting it: If you’re an owner of a pass-through entity, you’ll now be able to shave
20% off your earnings before paying taxes on it. But there’s always a catch, isn’t there?
Unfortunately, there’s a big one here. If your pass-through business generates revenue through the
professional services of one individual—think doctors, lawyers, accountants, and consultants, for
example—you’re not eligible for the deduction. However, if you are a sole proprietor operating outside the
field of professional services (e.g. you sell goods), you’d be eligible to take the deduction.
Bigger Write-Offs for Big Expenses
A new provision of Trump’s tax plan lets businesses write off a larger portion of large
equipment purchases up front, instead of depreciating them over a number of years.
These changes are part of a tax-saving tool called bonus depreciation. It sounds more complicated than it
is: Basically, when your business buys a new piece of equipment, you typically can write it off a little at
a time each tax season. This is a new tax deduction that lets you write off the entire cost of that
equipment purchase for the year you bought it. This way, you can spread out the cost of an asset you
purchase and use for business over a number of years (like a car) until you either recover the cost of the
asset or stop using it.
Bonus depreciation used to only cover new equipment purchases—but under Trump’s tax plan, it’ll cover all
equipment that’s still in use. Previously, businesses were only able to deduct up to $510,000 in equipment
purchases. Under the new tax plan, business owners can deduct up to $1 million in equipment purchases. If
you’re thinking, That’s a big difference! well, yes, it is.
How do these new equipment deductions from the Donald Trump tax plan affect your small business? Under the
new tax plan, you can deduct 100% of the cost of an asset in the year you buy it, whereas previously you
were only able to take 50% of the value.
In addition to increasing the percentage of value you can deduct, the new law lets you take the deduction
over five years, whereas previously it was only eligible in the year the asset was placed in service. The
deduction has also expanded to include used or old equipment—anything as big as a building or as small as a
So, if you’ve purchased new equipment, a new vehicle, or snapped up any new real estate since September
2017, this element of the Donald Trump tax plan benefits your small business. You can write 100% of the cost
for that off this year.
Repealed Corporate Alternative Minimum Tax
The Alternative Minimum
Tax (AMT) is a tax tool designed to make sure that large corporations don’t take too many deductions and
avoid paying taxes. The Donald Trump tax plan repealed the corporate AMT, which helps guarantee that
businesses can reap the benefits of the new tax cuts.
Essentially, the AMT is a separate way of calculating your tax liability. Every business is required to
calculate its tax burden in two ways: the normal way for corporate income taxes and, again using this other
method, the AMT. Most tax software will automatically make both of these calculations for you. Once those
two calculations are made, the business must pay whichever is the higher of the two tax burdens.
Figuring out the AMT is pretty complex, but the only thing you really need to know is that you don’t have
to figure it out anymore at all. There is no longer an AMT to calculate for small businesses. So, if you
feel like you’re finding deductions and exemptions that make your business’s tax burden easier, ride the
wave—there’s no alternative calculation to hold you back!
The repeal of the AMT, while contested in the House and Senate versions of the bill, was met with
excitement by the business community. Keeping it in place would get rid of a lot of the benefits of lower
tax rates for businesses, because it guarantees that businesses pay a certain rate regardless of the
deductions they take.
Updates to Accounting Methods
The Donald Trump tax plan lets more companies take advantage of the cash
method of accounting,
rather than the accrual method. Using the cash method of accounting, revenue is recorded
as soon as the cash is received from customers, and expenses are recorded as soon as they’re paid to
suppliers and employees. That’s different from the accrual method, in which revenue is recorded when it’s
earned and expenses are only recorded when consumed.
The time difference is the important part. Under the accrual method, business owners could get stuck
waiting until they sell inventory to deduct the cost of it, rather than being able to deduct it when they
make the purchase.
Generally, manufacturing businesses are required to use the accrual method, but the new tax plan raises the
annual revenue threshold from $5 million to $25 million, drastically increasing the number of businesses
that can qualify for an exemption from that rule.
That’s a huge benefit for any manufacturing businesses and for any small businesses that deal with inventory.
And here’s why: Accrual accounting requires that income and expenses be booked when they are owed, rather
than when they are paid or received. It can be costly to figure out the value of inventory—especially for
small businesses who operate in volatile markets where pricing is always fluctuating.
Trump’s tax plan relaxes the requirements around using the accrual method. Under the new law, businesses
with an average annual revenue of $25 million or less are exempt from the requirement, meaning they can use
the cash method. That’s up from $5 million under the previous tax code.
The takeaway here? Many more small businesses will now be able to deduct inventory when they pay for it,
rather than needing to wait until that inventory is sold. However, it’s important to remember that the
accrual method has its value too, especially when it comes to business forecasting.
Family Leave Credit
The Donald Trump tax plan also creates a new credit for wages paid for family or medical leave. The
intention of this tax credit is to encourage employers to pay when their employees need leave—a
fringe benefit that
can be tough on small businesses. Depending on the amount of wages paid out, the tax credit can range from
12.5% to 25%.
This part of the Trump tax policy isn’t permanent, though. Since it only lasts through 2019, make sure to
take advantage of it and provide that leave for your employees! Everyone will benefit!
Changes Within the Donald Trump Tax Plan That Could Negatively Impact Small Businesses
Although the new tax plan brings several new credits and increased deductions to incentivize things like
investing in new equipment and providing family leave, Trump’s Tax Cuts and Jobs Act also removes some
benefits and tax tools that small business owners used to take advantage of across all sectors.
With that in mind, it’s important to remember that each industry will be affected by changes to the Trump
tax code differently. Some of these tax changes could impact your small business by increasing your tax
Five Repealed Deductions:
Business Interest Deduction
The business interest deduction was an important part of the prior tax code that helped out business owners
who took out small business
loans to cover relevant operating costs. The interest on those business loans would be deductible as
an ordinary business expense.
While the business interest deduction wasn’t fully repealed in the Donald Trump tax plan, it was
significantly decreased, which might drive small business owners’ taxes up from years past.
Under the Donald Trump Tax plan, the business interest deduction is cut to 30%. That’s a long way from before,
when the business interest deduction wasn’t restricted at all. This’ll impact the way small businesses file
taxes this season because they can now only deduct an interest expense of up to 30% of their business’s EBITDA
(earnings before interest, taxes, depreciation, and amortization).
While this mostly impacts companies with a taxable profit, like C-corps, small businesses that have a lot
of debt on their books should be especially conscious of this change. But it’s not all bad news: If your
small business has an annual average gross receipt of $25 million or less for the past three years, you’re
in luck—your business is exempt from this rule.
The Controversial Section 199 Manufacturing Loophole
Trump’s new tax plan got rid of a deduction that was commonly claimed by manufacturing businesses, called
the Section 199 deduction.
Section 199 allowed business owners to take a 9% deduction on income from qualified production activities,
with the intention of incentivizing domestic manufacturing in the U.S.
This was one of the biggest loopholes cited by critics of the former tax code. For example, if a company
assembled, say, a gift basket onsite, even if the basket comprised fully pre-manufactured goods, the gift
basket company could claim the controversial Section 199 deduction.
Manufacturing firms can no longer claim this benefit because it was repealed in this tax bill.
Deduction for Entertainment Expenses
Any business owner in client service is familiar with the dynamic of wining and dining a client. Sports
games, dinners, drinks—all of that entertainment is fun, but pricey. At the same time, it can often be the
best way to attract new business, so the tradeoff is often worth it. Especially if you could write it off
come tax season.
Prior to the Tax Cuts and Job Act, business owners could deduct up to 50% of expenses they’d paid for
business-related entertainment. No more: The new tax plan does away with deductions for entertainment
Unfortunately, that means a lot of business owners are going to have to start paying taxes on things like
box seats and dinners out with clients. Or drop them from their business plans entirely.
Deduction for Providing Employee Meals
Another employee perk that used to be deductible were employee meals. Now, if you feed your staff on
business premises, that food that was formerly 100% deductible under the former tax law is now only 50%
deductible. By 2025, it won’t be deductible at all.
Deduction for Transportation Expenses
This one is pretty straightforward—and one that a lot of small business owners are going to miss. Under the
Donald Trump tax plan, business owners can no longer deduct the cost of providing employee parking, public
transportation passes, and bike commute reimbursements.
What Other Impacts Can Small Business Owners Expect to Feel from the Donald Trump Tax Plan?
How will Trump’s tax plan affect me? It’s an understandable question with a complicated answer.
As with most complex legislation, you can expect the impact of Trump’s tax plan on your small business to
be a mixed bag. That’s especially true for an overhaul like this, which completely rewrites many aspects of
the tax code. You’ll probably end up finding that some things that may benefit your small business directly,
especially if you’re a pass-through entity, and that other pieces, like deductions you’re used to taking,
The most important thing to do to stay informed about how Trump’s tax plan will impact your business is to
speak to your accountant. Keeping open those lines of communication with your tax team will help you find
out which new credits and deductions you can take advantage of this year, and in the years to come.
These chats might even change the way you do business—like implementing new family leave policies,
strategies for tracking inventory, or accounting methods!
Things to Think About As You Do Business Under the New Tax Code
1. The best way to invest in your workers.
You might have noticed that as a reaction to corporate tax cuts, U.S. businesses are giving out bonuses to
at least 3 million workers acrossthe country. Moving forward, small business owners have an
opportunity to determine how much their tax burden will change, and evaluate the best way to invest any
potential savings into their businesses.
Bonuses are just one way to do this—owners can also pass this money to their workers in the form of other
structural investments, such as wage increases. Business owners should definitely weigh the impacts of
giving a one-time bonus versus a permanent wage increase, since these will definitely impact their teams
2. Temporary versus permanent code changes.
Although these changes to the tax code kick in immediately, not all of them last forever. Some provisions
expire as early as 2019, and others last through 2025. Some have also been instituted in perpetuity.
Again, you’ll need to talk to your accountant (sensing a theme here?) for the most accurate advice—and
especially the kind that pertains to your specific industry, and you personally.
3. The impending deadline to reclassify.
Most immediately, small business owners should keep an eye out for the March 15 deadline to consider entity
classification. Is your business set up the most advantageous way? Since this will impact the way you file
your taxes and the credits/deductions you will be eligible for, this should be top-of-mind.
The goal of widespread tax cuts are to help empower businesses to invest in their employees and growth. If
you’re a small business owner trying to determine the impact of the Donald Trump tax plan, take advantage of
all of the small
business tax information resources available to help you along the way!