My waders are hanging by the front door. The ground under me was not very solid and I was in constant danger of losing my footing and being swallowed into the Conference Report from the recent tax law changes. That’s what it takes to even try to understand the business changes, rates, exclusions, etc., that will apply to tax returns for small business owners for the next few years. My takeaway, the easiest part of it, if you will, is that if you have a small business, there is a 20 percent discount against the business income. How this will work is not completely clear; it will require the IRS to interpret the rules, issue guidance and create the forms and worksheets to accomplish what Congress is intending. Small businesses, whether sole proprietor (using Schedule C), S Corporation or Partnership will pay taxes on only 80 percent of their income under most circumstances. If you have a small business, these provisions will be in effect in 2018 and phase out by 2025, so plan accordingly.
Now, if you are a fan of small brew craft beers, wines and some distilled spirits, rejoice! The tax on small producers is getting cut in half for beer and wine, much more for spirits. I’m not sure that I expect to see differences on the store shelves, honestly, but it is an interesting section in the tax law. Of course, it only applies to the first gallons produced and production above that gets taxed at a higher rate. This is why I don’t expect to see any changes to the shelf price. Producers will just have slightly higher profits on their first 60,000 barrels for beer producers, a stepped credit for wine producers that ranges from $1 down to $0.535 per gallon of wine. For distilled spirits producers, the tax rate drops from $13.50 per gallon to $2.70 per gallon for their first 100,000 gallons. If those reduced rates are passed along to the consumer, expect to see lower prices on your favorite craft brews, wines and other spirits. Maybe your Valentine’s Day bottle of wine was just a few cents less than last year. To take advantage of this you will need to buy up, as the product had to leave the brewery or distillery after December 31, 2017 and the tax reverts to the 2017 levels after December 31, 2019.
If you are a client, we do have a handy comparison that can give you an estimate of your taxes at the time you do your return. Do know that it is based on your tax situation from 2017 and won’t directly take into account if your Valentine’s Day date went well or not. For that, you’ll want to make an appointment to review your expected tax circumstances before the end of the year. FBN
By Patrick Fleming, EA