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Tax Reform Bill Offers New Hope for Small Businesses

Tax Reform Bill Offers New Hope for Small Businesses

By Susan Bloom

With the new tax reform bill moving closer to enactment before year-end, businesses nationwide are seeing the possibility of attractive tax breaks and other financial stimuli that could help boost their businesses as well as the economy.  Following, expert Palmer Schoening, Chairman of the Washington, D.C.-based Family Business Coalition (familybusinesscoalition.org) and President of Schoening Strategies LLC, sheds light on this potentially milestone legislative breakthrough by sharing the status of the bill, some of the ways it could benefit businesses nationwide, and how distributors should think about and capitalize on the bill should it be enacted into law.

tED:  What’s the current status of the tax reform bill?
Schoening:  While things are still fluid, the bill moved through Congress and passed by a narrow margin on November 16, which represented the first step. The Senate is currently marking it up and there will likely be ongoing discussions and negotiations over matters like the repeal of the Individual Mandate (which, under the Affordable Care Act, incurs financial penalties on those who don’t purchase health insurance) in order to balance the needs of both Republicans and Democrats with public interests. However, there’s enormous pressure on the House and Senate to reconcile their issues and put a bill before the president before year-end; while the consensus is that the bill will be easier to pass if it’s wrapped up before the holidays, Congress in particular is reeling from the perception that they ‘failed’ on healthcare this year, so there’s added pressure on the House to pass tax reform or else suffer losses during mid-term elections. The mood in both the House and Senate is currently one of high energy and impatience; many legislators have been working 12-16-hour days, haven’t seen their families in weeks, and are very motivated to get things done. For President Trump and his brand image, it’s also imperative that he secure this win.

tED:  Please share some of the key elements of the tax reform bill and its key objectives.
Schoening:  The new bill has three goals:  1) to lower taxes on all businesses to create jobs, 2) to cut taxes on the middle class through measures like doubling the standard deduction to $24,000, expanding the child care tax credit, etc., and 3) to enhance simplicity and make it easier for individuals to file via the introduction of a simpler 1-2-page form. On a positive note, the House and Senate have been fairly united on big issues that affect corporations and small businesses, differing only in some of the details (such as the exact number of tax brackets, etc.) and timing of implementation. Among the highlights of the bill, the corporate and small business tax rates would be lowered to 20% and 25%, respectively, and there would be no repeal of LIFO, which is a big win; this would mean that distributors can continue to use the last-in-first-out accounting method and won’t be taxed on their reserves, which is the best of all possible outcomes. Finally, through expansions to Section 179 of the tax code, small businesses will be able to expense up to $500,000, a nearly ten-fold increase from the $55,000 expense limit currently in place; this enlarged new cap will encourage more businesses to invest for an instant write-off and will serve to stimulate the business cycle.

tED: Are there any negative impacts the bill could have on businesses?
Schoening:  While the bill will likely make it easier for individuals to file their taxes, the forms may not be simplified and in fact could become a bit more complicated for small businesses based on ‘guard rails’ put in place which require them to prove that they’re eligible for the 25% rate and aren’t fraudulently capitalizing on it. Also, some compromises in the bill will likely be less than what we lobbied for through the NAED; among those, the House and Senate are currently at odds on the handling of estate tax, the amount of property that can be exempted from taxation, and the timing by which their various proposals on these items would go into effect. Their different approaches are still up in the air and don’t completely solve the problem, but we’re hoping that distributors and other businesses will see at least some relief in the area of estate taxes.

tED:  Overall, what impact do you think the new bill could have on distributors?
Schoening:  I think that distributors and other businesses will be paying less out of their pockets and the economy will strengthen. If the bill passes, we may see explosive growth because there’s been so much pent-up savings by businesses over the past 7-8 years; with the bill’s enactment, a flurry of investment both here and overseas could ensue, which could have a great impact on the economy.

tED:  Any advice for distributors on how they should think about or act upon the new tax bill if/when it passes?
Schoening:  I would recommend that distributors look at the bill as a whole and compare it to the status quo, which isn’t working – we’ve heard constant complaints regarding how complicated the current tax code is, how much businesses are paying, etc. With the potential financial relief and incentives that the new tax code promises, distributors should absolutely consider any future plans they want to put in place or investments they might want to make in their businesses in terms of personnel, equipment, programs, etc. because the economic environment will be conducive to that.

Bloom is a 25-year veteran of the lighting and electrical products industry. Reach her at susan.bloom.chester@gmail.com.

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