For a small business owner, late winter and early spring may be an especially hectic time of year—not only are you dealing with shorter days (and tempers), but you're required to file a number of different tax documents with state, local, and federal departments of revenue well before the fated April 15 deadline. And with legislative bodies tweaking tax laws each year, keeping up with changing due dates and eligibility guidelines on top of the day-to-day responsibilities of running a business can be exhausting. Read on to learn more about some of the changes—and proposed changes—to federal tax laws that may impact your business over the next couple of years.
If you've found yourself feeling as though you've scrambled to get your taxes in order more this year than ever before, you're not alone—many states have made changes to their corporate tax filing deadlines to better comport with the federal deadlines, in some cases shortening the previous deadlines by weeks or even a month.
Because missing a mandatory tax reporting deadline can subject you to steep penalties in many jurisdictions, it's important to take steps to ensure any missed deadlines don't recur. If you don't already utilize the services of a tax accountant who specializes in business tax preparation, now may be the time to begin; and if you prefer the DIY approach, you'll want to go ahead and write in important deadlines and due dates on next year's calendar (as well as "tickler" reminders to ensure you're aware of these deadlines early enough to be prepared to meet them).
Requesting an extension as soon as you fear you'll be unable to meet a deadline should also reduce your odds of being assessed a financial penalty; on the other hand, letting a deadline breeze by without providing any notice to the IRS (or employees who might be affected) could have a long-term negative impact on your business.
(Potential) reduction in the corporate tax rate
President Trump has proposed reducing the corporate tax rate from a maximum rate of 35 percent to an across-the-board 15 percent. While any reduction in the tax rate assessed on your business may seem like a positive development, this reduction is likely to come in lieu of many of the other tax credits and deductions you're currently enjoying. If depreciation and the deduction of certain employee-related business expenses are usually enough to get your effective tax rate below 15 percent each year, you may not actually benefit from a reduction in the corporate tax rate.
On the other hand, a reduction in the corporate tax rate can make it much easier—and more attractive—to utilize your old 401(k) or IRA as part of your business's financing. Through the rollover for business startups (ROBS) program, you'll be able to convert your 401(k) to a corporation in which you're majority shareholder. You can then transfer these shares of your 401(k) to your business, where these funds can be used to invest in new employees, new equipment, or any of the other improvements your business needs to shine—all without dealing with the taxes and penalties that are usually associated with premature 401(k) withdrawals.
Because the future of U.S. tax law is somewhat unpredictable, it's important as a business owner to remain as flexible as possible so that you'll be in a good position to adapt to any changes that come. This may mean holding off on significant investments in infrastructure, research and development, or alternative energy sources that may not yield as much benefit if the deductions for these expenses are disallowed at the federal level within the next few years. By keeping your cash reserves healthy and staying abreast of changes in tax laws and small business regulations, you'll be ready to pounce on the next great opportunity that comes your way.