Changes this tax season
It is tax season and that means local people are busy completing their federal and Vermont returns.
Among the recent changes made by Congress are a couple relating to business income tax rules. The purpose of these changes is to put American businesses on the same playing field here at home as foreign countries put their businesses. Reduction in taxes for American producers makes it easier for those American companies to compete with overseas competitors.
One change made by congress is the qualified business income deduction which allows small businesses to deduct as much as 20% of their income from their taxable income. The 20% would not count in the total taxable income. Partnerships, S-Corps, and sole proprietors may qualify for this deduction.
Another change is the business interest expense limitation. Be careful implementing this one. It limits the amount of interest that can be used to reduce tax. The interest amount cannot be larger than 30% of the taxable income amount. Obviously this adds to the amount due bottom line and appears to be a revenue generator.
Unfortunately these two changes make the federal tax return even more complicated than it was before. Many businesses may qualify for the 20% income reduction, but may not know about the 30% limit on business interest. Like most changes to federal law, both of these changes are extremely difficult to figure out. So difficult that few business owners will be able to implement these changes by themselves. And tax preparers cannot implement them without training.
Are these changes helping Franklin County businesses? It is helping some of them, but business owners should read the instructions carefully to avoid mistakes. Federal and state tax returns are due April 15. Partnerships and S-corps are due March 15. Extensions for all are possible if needed.
Carolyn Branagan, Georgia