What You Need to Know About the New Tax Bill
**Updated Jan. 9, 2018**
Mary Westbrookon, Editor in Chief of Floral Management, the official publication of the Society of American Florists, recently posted on SAFnow.org about the newly signed tax bill and what it means for the floriculture industry. Here’s a quick look at some of the post’s highlights:
“The new tax law reduces the corporate tax rate to 21% beginning in 2018, and makes that rate permanent. Under the new law, pass-through entities, typically small businesses, will see a 23% deduction of qualifying pass-through income. The provision expires at the end of 2025 and treatment would return to existing policies.
“The law also repeals the fine imposed on individuals who do not purchase health insurance, often referred to as the individual mandate — a stipulation that has caused some confusion in the small-business community, cautions Shawn McBurney, senior director of government relations for the Society of American Florists.
“‘It is important to stress that the requirement that an employer offer health insurance to their employees (the ‘employer mandate’) remains in effect and is being enforced,’ McBurney explains.”
Learn more at Safnow.org/business-owners-react-tax-code-overhaul/.
Original story published Jan. 2, 1018
The United Fresh Produce Association, which represents the needs and interests of fruit and vegetable growers, recently updated its members on how the recent passage of the Tax Cuts and Jobs Act might affect their businesses. Many of the insights provided by United Fresh also apply to greenhouse growers and nurseries.
“While there has certainly been a strident political debate over various provisions of the bill, this legislation will have a profound effect on your businesses and you as individuals,” United Fresh notes in the statement to its members. “United Fresh has been involved in many coalitions addressing tax reform, from farm and agriculture groups to more broad business groups. Our goal has been to make sure that the voices of small businesses, family businesses, and corporations alike are heard. And again, although there will continue to be debate as this rolls out in the coming years, we feel that our voices were heard and that many changes in the tax code will be good for you and your businesses.”
United Fresh also provides its members with a report from its U.S. Chamber of Commerce coalition that details the broad changes in the tax bill, and the impact on small businesses. The following information comes from that report:
The bill includes a new 20% deduction on the first $315,000 of joint income ($157,500 in the case of a single return) earned by a pass-through. For example, if a small business earns $200,000 and the owner files a joint return, then the owner will not pay taxes on $40,000 (20% of $200,000) of their income. The 20% deduction is in addition to the overall lower tax rates for individuals and pass-throughs provided by the bill.
For larger pass-throughs with joint income above $315,000, the deduction is restricted as follows:
• It is phased-out for “professional services” which include: businesses in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of the business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities.
• For other businesses, the deduction is limited based on W-2 wages paid or capital invested by the business owner. Specifically, the deduction is limited to the larger of:
— 50% of the W-2 wages paid by the business, or
— The sum of 25% of W-2 wages paid plus 2.5% of the initial cost of tangible, depreciable property used in the business
The official explanation of the bill includes this example:
For example, a taxpayer (who is subject to the limit) does business as a sole proprietorship conducting a widget-making business. The business buys a widget-making machine for $100,000 and places it in service in 2020. The business has no employees in 2020.
The limitation in 2020 is the greater of (a) 50% of W-2 wages, or $0, or (b) the sum of 25% of W-2 wages ($0) plus 2.5% of the unadjusted basis of the machine immediately after its acquisition: $100,000 x .025 = $2,500. The amount of the limitation on the taxpayer’s deduction is $2,500.
• Expanded Ability of Small Business to Immediately Write-off the Cost of New Equipment: Under current law (section 179), small businesses are accustomed to deducting purchases of new equipment immediately, subject to certain limitations. Under tax reform, these limitations are waived so all businesses will be able to deduct all equipment purchases.
• Small Businesses Continue to Deduct Net Interest Paid: While the bill imposes a new restriction on the ability of large businesses to deduct their net interest payments, small businesses with gross receipts of less than $25 million are excluded from this restriction. As a result, small business will continue to be able to deduct their interest expenses.