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While the federal tax overhaul changes signed into law in 2017 don’t affect filing this year, they’ll have a major impact on business and personal taxes filed for 2018 — and the time to start planning for that is now. For individuals, that means running the numbers for 2018. Will the changes affect your withholdings? If you receive a bonus, have you taken into account the flat rate tax? How can you maximize charitable and home equity deductions? For companies, the new tax law raises questions about structuring the business for optimal outcomes. Seeking clarity from a tax lawyer, accountant, or financial adviser is the most important step you can take. An astute tax partner will clarify what the new tax code means to you and answer questions you might not even know you had.
Q: What strategic opportunities should businesses consider under the new tax laws?
A: The 2017 tax act represents the largest and most extensive tax reform since the 1980s. The result of the legislation will be lower taxes and higher profits for most businesses, and a tax cut for somewhere between 75 and 85 percent of all American households.
The federal corporate tax rate drops from 35 percent to 21 percent. We estimate tax cuts will help boost Fortune 500 companies’ stock prices anywhere from $8-15 a share, with Amazon, Google, Facebook, and Dow DuPont alone saving $4-5 billion in corporate income taxes in 2018.
We believe there will be a wide range of strategic uses by businesses large and small for increased net corporate revenues. Uses will include increased hiring, higher wages, increased dividends, reduced debt, stock buy-backs, and increased capital investment.
Finally, J.P. Morgan Chase CEO Jamie Dimon believes tax cuts will boost job and GDP growth, with 4 percent GDP a possibility in 2018.
Senior Vice President and Director,
The McNair Center for the Advancement
of Free Enterprise and Entrepreneurship,
4000 Whiting Dr.
Midland, MI 48640
Q: How can closely held and family businesses take advantage of the new tax act?
A: The new tax act provides opportunities for small businesses to save tax dollars while allowing family businesses to transfer a greater portion of their business to the next generation on a tax-favored basis. It extends capital expense write-offs subject to limits, in some cases making it cheaper to expand.
The increased exemptions from the death tax will allow continued plans to transfer wealth free of tax by using a variety of gift-giving and family transactions to prevent taxes from burdening small and family-owned businesses. Also, the lower corporate tax rate and qualified business deduction for flow-through entities (used by many small businesses) presents the same question: Which entity formation is right for your business? The answer may differ if a single entrepreneur owns multiple businesses.
In this lower tax environment, planning is crucial. That means it’s a good time to review both short-term and long-term goals with your advisers. Many of these tax breaks are set to expire, so time is of the essence.
Warner Norcross + Judd LLP
2000 Town Center, Ste. 2700
Southfield, MI 48075
Q: There’s been a lot of discussion following the new tax act about the big cut in corporate tax rates. Does this mean corporations will again be the entity of choice, and/or that I should consider restructuring my business entity to a corporation?
A: Not necessarily. Although the corporate tax rate has been reduced to a flat 21 percent, significantly benefiting corporations with income over $50,000, you must remember that the after-tax profits are taxed again when distributed out to shareholders as dividends or used to buy back stock from shareholders. So, there’s still an element of “double taxation” when doing business in the corporate form.
“Pass-through” entities, for tax purposes, still provide tax benefits and planning opportunities, and LLCs, limited partnerships, and S corporations also provide protection for the personal assets of business owners. You should consult with a tax specialist to address your particular business situation and needs.
Dickinson Wright Office
350 S. Main St., Ste. 300
Ann Arbor, MI 48104