How Trump's Tax Bill Could Be a Game-Changer for Your Business

The following is a transcript of the podcast episode. Listen Here

Business Tax Changes Coming

Today is June 30th, and the Senate is deliberating President Trump's big tax bill. I've already talked about the proposed cuts for families, but in this episode, we're going to talk about how this tax bill could affect those of you who own businesses—specifically those of you who own the kind of businesses that are pass-through entities like S corporations, partnerships, LLCs, and sole proprietors.

The Pass-Through Deduction Gets Even Better

The very first thing that's proposed here is very interesting. If you've been in my office, you know that I have talked to you about this pass-through deduction—basically where you can get 20% of your disbursements really kind of tax-free. There's a loophole, and I told you that loophole was sunsetting at the end of this year.

But it's back in the bill and it is proposed to be permanent. So not only is it proposed to be permanent, it is proposed to be 23%. Most small business owners will qualify for this, but it does have income limits.

This is going to be very interesting to see if it gets passed again, because it's a seriously big loophole for small business owners.

100% Bonus Depreciation: Buy Equipment, Get Immediate Deductions

Next is the 100% bonus depreciation. The bill resets bonus depreciation to 100% for certain properties acquired. What that's going to do is allow small businesses to immediately deduct the full cost of equipment and computers and machinery and other business assets in the year it's purchased instead of depreciating it over seven years.

In the real world, this could mean if your business is in some form of manufacturing and you went out and bought a $20,000 machine, rather than depreciating that $20,000 over seven years, you can actually get the full deduction this year. So we'll probably see that contribute to some economic activity with people making large purchases in manufacturing equipment or computers, et cetera.

Super interesting. We'll see how it shakes out.

R&D Expense Deduction: Great News for Tech and Innovation

Another interesting thing in there is the R&D expense deduction. R&D is research and development. If the bill passes, it's going to restore immediate expensing for domestic research and development, which is going to allow businesses to deduct their full R&D costs immediately rather than amortizing them over five years.

This is particularly helpful to tech startups and super innovative small businesses where maybe large research expenses or development expenses have been in play.

No Tax on Tips for Service Business Owners in Bill

I mentioned this in the other episode, but just in case you didn't catch it, the bill actually proposes benefits for small business owners that are particularly in the space of service industries where they receive tips. So if you're a massage therapist or you're a hairdresser or you're someone who owns a coffee shop where tips are part of the financial equation, they are proposing that there will be no income tax federally on those tips.

Tax-Free Overtime for Your Employees

And if you own a business where you have employees that may fall into the overtime category, overtime pay becomes tax-free to the employee if this bill passes. Isn't that interesting?

The Bad News: Meals and Entertainment Still Limited

I'm sad to report that there's been no proposed changes on being able to deduct meals and entertainment in our same city. That 50% rule is still going to apply. So no luck there.

The Bottom Line for Business Owners

This tax bill could be a massive win for small business owners, especially if you're running a pass-through entity. Between the enhanced pass-through deduction jumping to 23%, the immediate equipment write-offs, and the R&D benefits, we're looking at some serious tax savings opportunities.

I will keep you posted as these things move through the Senate. Have a great week!