Changes in tax laws occur every year, affecting businesses of all types. These changes affect the planning and preparation of taxes for businesses ranging from sole proprietorships to large corporations. Here is a quick look at the changes which take effect during the 2017 filing season.
Tax Changes Small Businesses Should Know
Tax Related Dates for 2017 Filing Season
The tax year for sole proprietorships filing Schedule C, S corporations, and partnerships ended on December 31, 2017. For other types of corporations, the tax year ends on the final day of their fiscal year, and may be different than the traditional end of year.
Because April 15 falls on a weekend in 2018, and the Monday immediately following is a holiday in Washington D.C., most businesses will have a filing deadline of April 17 this year. The exception is for S corporations and partnerships, which have an earlier filing date of March 15. The April 17 deadline includes tax filings for the following types of businesses:
- Sole Proprietors filing Schedule C
- LLCs with single memberships filing Schedule C
- Corporations
Taxable Income Rates
Personal income tax rates such those paid by sole proprietors range from 10% to 39.6%, based on the taxable income of the business. Corporations are taxed separately from their shareholders, and the tax rates range from 15% to 35%. Your tax preparer can assist you with filling out IRS Form 1120, which determines the taxable income for corporations.
Medicare Tax
The Income Tax Relief Act of 2013 included an additional Medicare Tax of 0.9% for individuals and small business owners with incomes above specific levels. This tax does not affect employers or corporations, but does apply to single proprietors and other business entities owned by an individual or married couple. The tax kicks in at income levels generally ranging from $200,000 to $250,000, based on whether they are filing individually, jointly, or as a head of household. Higher income individuals may also be required to pay a 3.8% net investment income tax on their investment income from dividends, interest, capital gains, etc.
Depreciation Deductions
There are some increases to the depreciation deductions for businesses, including Section 179 deductions, and the temporary reinstatement of bonus depreciation for new equipment purchases. The bonus depreciation amount for 2017 filings is 50%.
Social Security Maximum
Small business owners who pay self-employment taxes will see an increase in the maximum social security limits used to calculate their self-employment tax, going up to $127,200. If the business owner has employment income as well, that income should be considered first, and then the self-employment income when calculating the self-employment tax.
Mileage Rates for Businesses
Businesses are allowed to use either the IRS standard mileage rate or actual expenses. For 2017, the standard rates have changed.
There are 3 types of mileage deduction rates: Business miles (53.5 cents/mile), medical and moving mileage (17 cents/mile), and mileage used in the service of a charitable organizations (14 cents/mile).
If you have questions about your business taxes, contact one our friendly CPAs. The professionals at Ernst Wintter & Associates LLP have experience with all types of business entities. We stay updated with federal and state tax laws and track the changes and developments in your industry to help you manage your company.