As the deadline for filing taxes approaches, both entrepreneurs and their employees are wondering how the tax bill Congress passed and President Trump recently signed into law will affect their returns next year. Wherever you may fall on the political spectrum, there’s no question that the changes introduced by the new law could have a significant impact on how much you owe the government — or how much the government owes you.
While most economists agree that the decrease in corporate taxes from 35 percent to 21 percent is likely to increase business investments, it’s unclear how much of the increased profit margins will go to workers. The changes in the tax law could save businesses tens of thousands of dollars — some far more — but it leaves the decision of how to use these savings up to business leaders. Some of the money could go toward year-end bonuses, but other options could be hiring additional employees or investing in newer technologies.
For entrepreneurs looking to grow their businesses, the tax law is likely a welcome opportunity to reinvest in their projects, whether it’s into their employees, equipment, advertising, or another area entirely. Here’s what a few entrepreneurs had to say about it.
- Mike Kalis, CEO and Founding Partner, Marketplace Homes
Mike Kalis highlighted the fact that higher income levels mean fewer government programs and subsidies are needed to build housing. He explained: “Success breeds success, and the last year has been economically one of the best our country has had, ever. People feel like they’re getting money back, companies are giving people raises, the repatriation of cash coming into the United States is gigantic.”
As median household income approaches $60,000, families are better able to afford to buy homes in the neighborhood of $200,000. Kalis said he expects builders and contractors to work to accommodate this figure and enjoy plenty of business without requiring government subsidies.
- Dan Wesley, Founder and Editor-in-Chief, CreditLoan.com
Dan Wesley suggested that entrepreneurs, especially those making more than $500,000 in income, meet with a CPA as soon as possible to explore the standard 23 percent deduction rather than taking an itemized deduction. That’s because most deductible expenses (such as advertising) exceed 23 percent of income.
He said the new tax law could mean more money for some small businesses to reinvest. However, if your business is close to the $500,000 mark, the new law might instead mean you make tweaks to ensure you remain below that threshold. Wesley explored another issue, looking at the impact the new law would have not just on businesses, but also their customers: “Perhaps we should be more concerned about [customer] access to those service providers who have those threshold incomes of $500,000. Are we effectively limiting access to those individuals or causing a chill effect on the quality of service consumers have access to via the threat of higher taxes for the provider?”
Companies might well be incentivized to increase vacation time or reduce business hours to avoid being taxed at a higher rate once they cross the threshold.
- Michael Burdick, CEO and Founder, Paro
Michael Burdick also advised businesses to consult with a tax expert to fully understand the myriad changes in the law, saying that such experts “will be able to advise you on how your business will be affected and how to most effectively minimize your tax liability going forward. The new tax plan affects businesses differently depending on how they’re structured (i.e., as a C-corp or as a pass-through entity like an S-corp, partnership, or sole proprietorship) and how much taxable income they have at the end of the year.”
C-corps, for instance, are taxed down to a flat rate of 21 percent from the previous maximum of 39 percent. Before companies jump on the C-corp bandwagon, however, they’ll have to consider other details, such as the fact that C-corps are taxed first as a business, and then business owners are taxed again after earnings are distributed.
- Olivier Leonetti, CFO, Zebra Technologies
Olivier Leonetti said he expects the tax legislation to be a boon for his company, noting that the decrease in the company’s domestic tax burden will allow it to “continue to invest in research and development and our employee talent pool. We are also optimistic that this legislation will incent our enterprise customers to invest more of their capital in Zebra’s innovative offerings as they strive to improve their asset tracking and operational visibility to compete most effectively.”
Many businesses share the hope that customers will be driven to invest more. Capital-intensive industries would benefit the most from this investment, although it’s difficult to predict the degree of impact the new law will have.
- Steve Pizzolato, Founder and CEO, AVALA Marketing Group
Steve Pizzolato said he recently discussed with his employees how the tax cuts will affect the company’s budget. He said companies that have made early announcements attributing employee bonuses to the new tax law may be engaging more in political grandstanding than anything else, noting that the law hasn’t had time to have an impact.
Pizzolato said the new tax law could mean between $75,000 and $100,000 in savings for his company by the end of 2018. He added, “While it’s always good to pay fewer taxes, I told our employees I would rather see them benefit more directly with a tax cut for them than cutting our corporate taxes and leaving some subjectivity as to how the savings are utilized. I think some business owners will pocket the money; some will share the wealth.”
Pizzolato said the savings AVALA sees because of fewer taxes paid could mean an increase in employee year-end bonuses, or they might help offset employee healthcare co-pays. They also could be used to hire new staff members or for technology upgrades.
With many companies saying they plan to reinvest the money they’re saving from the tax cuts, what remains to be seen is how many business leaders will act on this sentiment and spend their extra cash on their workforce or capital investments. Those who do will make their companies more competitive in the hiring market and help the law live up to its full name: the Tax Cuts and Jobs Act of 2017.
