Great news may be coming to small and diverse businesses thanks to the new changes in the GOP tax plan. According to the Washington Post, the House Ways and Means Committee last week approved a bill that “provides for a 25 percent tax rate for many sole proprietors, partners and shareholders in what are known as S corporations. These owners have what are called pass-through companies because their business income is not taxed at the company level, but passes to their 1040 returns. The bill also creates a 9 percent rate for the first $75,000 in earnings by some smaller pass-throughs.”
Under current law, small businesses could have had their revenue taxed at individual rates as high as 39.6%. In the new bill, the top rate would be 38.5% with the current seven tax brackets simplified to four. While there is still push back on who qualifies for which brackets, when it comes to small business, this is a positive. “Both bills would drop the corporate tax rate to 20 percent, but the Senate bill would delay its effective date for a year. They would also allow for larger deductions on some kinds of equipment purchases. The House bill’s treatment of pass-through taxes was more generous than an earlier proposal that would have allowed only 30 percent of an owner’s business income to be taxed at 25 percent.”
Despite the good news for small businesses, optimism has decreased. According to a Bank of America survey of 1,000 owners for the months of August and September, “t 46 percent of owners are optimistic that the national economy will improve in the next 12 months, down from 52 percent six months earlier. Forty-eight percent said their local economies would improve, down from 50 percent.” Whether this is a sign of things to come or a small bump in the road as owners await tax reform remains to be seen, but more legislation in favor of business and the economy will have to pass for owners to continue to remain positive. It appears the honeymoon is over for the Trump administration and now actual legislation is necessary to keep business owners happy.