If you're a small business owner, you may sometimes feel as though you're adrift in a stormy sea with only a small life preserver – just one large-enough wave (in the form of a tax hike, supplier snafu, or even a negative online review) could be enough to capsize you with little chance of recovery. Fortunately, there are some proposed tax changes and amendments that may calm these choppy seas for many small business owners as they head into the horizon of 2017. Read on to learn more about some of the potential business tax changes to expect after President-elect Trump takes office and how these may impact your ability to finance your own small business.
What business tax changes may be enacted in 2017 and beyond?
President-elect Trump has proposed a plan that would eliminate the corporate alternative minimum tax (AMT) and cap the corporate tax rate at 15 percent. This is good news for business owners who regularly find their top marginal rates reaching closer to 35 percent, as well as those who find themselves hit by the AMT despite their plans and efforts to avoid it. This level of tax cut could immediately put profits back into business coffers, providing you with more cash to expand your inventory, invest in more capital assets or fixtures, or hire additional employees.
This tax reduction could also help business owners who are stuck in the no-man's-land of breaking even but not earning much of a profit. Years of this can leave you feeling as though you've purchased a job, rather than a business, and without more tangible losses you may not be able to pull the trigger on the sale or dissolution of your business as you would if the situation was just a bit more dire. A year or two of lower tax rates can boost your coffers and give you that extra financial stability you need to take your business to the next level.
How could these changes impact a small business owner's ability to acquire funding or financing?
Often, those who have retired from a "day job" to start up and run a business may find the financing piece of the puzzle a tricky one – even having six or seven figures saved in a 401(k) or IRA won't help unless you're able to set up a "rollover business start-up" (ROBS) to use these retirement funds directly for your business. In other cases, you may wish you were able to tap into these funds even after you've gotten your business up and running to provide yourself with some additional operating cash flow during slow times of year.
To utilize your 401(k) for business financing, you'll first need to convert your current business structure to a C corporation (if it isn't already) and issue shares of stock. You'll then use the funds in your 401(k) to purchase your business's C corporation stock. You (through your 401(k)) are then a principal investor in your business and are able to utilize your retirement funds for various business purposes, but without the expense and hassle of cashing out your 401(k) and paying taxes and a hefty penalty.
The changes proposed by President-elect Trump should make the ROBS process much easier (and more popular) than it has been in the past, due in large part to the potential reduction of the highest corporate tax rate from 35 percent to 15 percent. Because this rate is much lower than the personal tax rate at the top couple of brackets, it makes utilizing one's 401(k) for business expenses and paying yourself a smaller salary much more attractive option than withdrawing from the 401(k) to support yourself (and paying your top marginal rate plus any applicable penalty on these funds) while also trying to secure outside funding for your business.
Talk to professionals in the industry and visit sites like http://www.cpa-winterhaven.com for more information.
When it comes to keeping your business afloat, there aren't many things more important than looking after your finances. If you aren't careful, financial problems can get out of hand quickly, which can affect your ability to stay in business at all. I run a small business out of my home, and I can tell you that careful attention to your books can make a world of difference. Check out this website for more information about financial considerations, spending, and monitoring your bottom line. I'm not a professional accountant or anything, but by making a few moves in the right direction, you can solidify your business and avoid financial disaster.