Small businesses and U.S. workers are seeing real relief thanks to the Tax Cuts and Jobs Act (TCJA).
With 2018 marking the first year of the tax law, there are various misperceptions and myths surrounding what the TCJA does and doesn’t do.
Here are some tax myths, debunked, and the facts about how the tax law helps small business owners.
Myth: Tax relief benefits major corporations, not small businesses.
Fact: The majority of small businesses benefit from the tax bill. When the first draft of the bill didn’t do enough to support small business, NFIB and its members did not support it. So NFIB and its members worked with Congress to add the Small Business Deduction to the final version of the bill. This allows small businesses organized as pass-throughs (S-corporations, LLCs, sole proprietorships, or partnerships) to deduct 20 percent from their net business income up to $157,500 individual or $315,000 joint for tax year 2018. Ninety percent of small businesses are organized as pass-through entities.
Myth: The Small Business Deduction is complex.
Fact: The Small Business Deduction is simple. If your net business income is under the $157,500 individual or $315,000 joint thresholds, you can take the 20 percent deduction. Businesses over the thresholds can still qualify for the deduction; however, additional considerations come into play. For the 2018 tax filing season, see how much you can save using line 9 on the 1040 tax form.
Myth: Tax relief benefits only a select group of people.
Fact:. The bill contains provisions that help people across the board. In addition, business owners and their employees benefit from lower individual tax rates, changes to the alternative minimum tax, and an expanded child tax credit. NFIB members report that their new tax savings allow them to invest more in their businesses, hire more employees, and increase employee compensation.
Myth: The tax law doesn’t help households in high-tax states because it limits deductions on state and local taxes.
Fact: The benefits of the law—including the Small Business Deduction and lower individual tax rates—apply no matter where you live. The tax law provides many provisions to help offset limits on deducting state and local taxes. Before the Tax Cuts and Jobs Act was enacted, millions of households were ensnared in the Alternative Minimum Tax, and they were unable to deduct state and local taxes. Now, thanks to this tax law, far fewer American families will be subject to this tax. As a result, they will be allowed to deduct up to $10,000 for state and local taxes. Consult with your tax advisor to learn more about how the Tax Cuts and Jobs Act affects your business.
Advocate for Permanent Tax Relief
NFIB is working to make tax relief permanent. Absent Congressional action, tax relief for small business owners is set to expire at the end of 2025. Visit NFIB’s tax relief hub to learn more at NFIB.com/taxes and to write to members of Congress.
