The Tax Cut and Job Act was a bill that was made law through signing and took effect from the start of the year 2018 (Gale et.al, 2018). The law examines and provides a solution in the tax field. This paper will discuss effects of that law on business taxes. The Tax Cut and Job Act have led to a decrease in taxes related to income from thirty-five percent to twenty-one percent (Gale et.al, 2018). This law has led to the United States retaining a position that is below the average for other countries. Tax Cuts and Job Acts have revoked the minimum tax set to act as an alternative in the corporate field.
The Tax Cut and Job Act has affected business and more so taxes related to business. The law has opened up room for businesses to cut the full requirements in terms of the money required for new investments. Tax Cut and Job Act has made doubled a section in the law that involves investments in small businesses (Occhino, 2019). It, therefore, expanded the limit required for investing. The doubling is from five hundred thousand dollars to a million dollars for making expansion in small businesses. In small firms, there also procedures required in accounting. The law has also simplified it.
Tax Cut and Job Acts have cut the net interest in business, that currently, businesses can limit thirty per-cent of the income that comes from businesses before the business interest and depreciation. That limitation eliminated the deduction. Amortization will also face the same cut from limitation. However, a gross income of below twenty-five dollars, in businesses, those businesses will be exempted. The Tax Cut and Job Act cut the deductions made for operating losses to more than seventy per-cent of taxable income.
Tax Cut and Job Acts also revoked a circumstance in which a business that is going through a net operating loss, chooses to apply that loss to a tax return done in the previous years. This, however, applies to certain businesses that allow the owners or those responsible for paying taxes, for moving the losses forward for an uncertain period. Before, the net operating losses had a different effect, in carrying back and forward of losses. The former could be taken back for two years, and the latter moved forward for twenty years.
Tax Cut and Job Acts have removed the cut in domestic activities meant for production. It has improved other sectors, such as imposing a cut in federal premiums meant for deposit insurance. In the coming years, there will be the amortization of the amount of money to be spent on research and experiments for more than four years, other than an immediate amortization (Occhino, 2019). Generally, changes made from the tax cut and job acts, in business income taxes, as well as cuts in interest deductions and net operating losses, affect almost all businesses. It will also affect the corporate income tax.
Tax Cut and Job Acts have also brought about a pass-through in businesses relating to the cut in incomes. It has introduced a reduction in incomes. In the new law, taxpayers with a taxable income below $315,000 can cut a small percentage of their qualified business income (Gale et.al,2018). The small percentage lowers one's income tax rate, referring to the individual. However, these deductions can be altered depending on the business type, the number of wages paid, and the properties possessed by the business.
Tax Cuts and Job Acts also affected some international issues, such as foreign income. There was the elimination of some taxes and tax relief imposed in multinational firms. It also produced a tax that includes foreign companies and the U.S. To move forward; the law also produced a repatriation tax for each output made by foreign companies that were untaxed. The untaxed amount came to about $ 2.6 trillion as estimated (Gale et.al, 2018). The companies have eight years to pay the tax with a minimum payment set according to the law.
Occhino, F. (2019). The Macroeconomic Effects of the Tax Cuts and Jobs Act. SSRN Electronic Journal. doi: 10.2139/ssrn.3503546
Tax Reform Act. (n.d.). The SAGE Encyclopedia of Business Ethics and Society. doi: 10.4135/9781483381503.n1160
Gale, W. G., Gelfond, H., Krupkin, A., Mazur, M. J., & Toder, E. J. (2018). Effects of the Tax Cuts and Jobs Act: A Preliminary Analysis. SSRN Electronic Journal. doi: 10.2139/ssrn.3280582
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