The Tax Cuts and Jobs Act is a tax cut for the middle class, and House Republicans recognize that small business is a huge driver of middle-class lives. That’s why this legislation is designed to provide small businesses tax relief, whether it's a business that employs hundreds of workers or is just a regular mom-and-pop operation. Here's how it works:
The reality is that most small businesses file as individuals. These small-businesses are known as “pass-through” entities and will experience major tax relief from our plan.
1. They will experience all the benefits that individual taxpayers see, such as:
- Doubling the standard deduction small businesses can take, from $12,200 for a joint filing to $24,400.
- Simplification of the tax brackets, from 7 brackets to 4 brackets.
- Lower rates at every income bracket.
2. That’s not all. In order to ensure that small businesses continue to expand and raise wages, the Tax Cuts and Jobs Act includes a small business provision: a 25 percent cap on how much small businesses can be taxed.
- That means, a small pass-through business bringing in one million dollars will not be taxed at 39.6 percent, but rather will be able to take advantage of the new small business income tax of 25 percent.
- But the benefits also extend to mom-and-pop small businesses that take in far less than that. A typical small business takes in, for example, $75,000 in income will see lower taxes as well. First, it gets the benefit of the larger standard deduction, which means more of its money isn't being taxed at all. And then most of this business' taxable income will now be taxed at a 12 percent rate instead of the current 15 percent. That's real savings.
- There are also guardrails in place so that high-income earners cannot game the system and file as businesses in order to take advantage of the system.
3. Cash flow is incredibly important to small businesses. Another provision in the plan allows small businesses to write off capital investment expenditures in the year they are incurred. That includes computers, manufacturing equipment, and trucks. That’s a tax break these businesses will see immediately.
As Stephen Moore of the Heritage Foundation and Alfredo Ortiz of the Jobs Creators Network said in an op-ed over the weekend, “Taken together, these small business provisions in the new tax bill bring vital relief to the nation’s job creators. President Trump said last week that one primary goal of this bill is to make America’s business tax system one of the most competitive in the world, where businesses can expand, hire, and raise wages. All small businesses should support it.”
We believe small businesses are the backbone of the American economy. They are the ones creating jobs and raising wages. Helping small businesses means we’re helping the middle class. That’s why they receive major tax cuts in our legislation.
Simply put: It’s good for the middle class and good for the economy.