How the New Tax Law Impacts Small Business Owners

How the New Tax Law Impacts Small Business Owners

Employees of many large corporations have received employee bonuses and wage increases in the aftermath of the recent tax overhaul. In contrast, many small-business employees have experienced disappointment by being denied a similar benefit.

Although many small businesses owners have yet to decode the new tax law, polls show that most small business owners believe that the new law might hurt them. With that being said, there are a few things you should know about how it will impact small businesses.

Uncertainty: Unlike the permanent tax cuts that apply to large corporations, the new tax law only offers temporary benefits to small businesses. As a result, you can expect business owners to hesitate to take any action based on the new law.

Although future congressional action could extend the benefits of the new tax law, no one can count on that happening. Instead, small businesses will probably want to maintain “business as usual” to avoid needlessly increasing their vulnerability.

Disadvantage: 99.9 percent of all companies in the USA are categorized as “small businesses.” These firms

employ almost 60 million people and have long been regarded as the impetus behind job growth.

Therefore, a casual observer might think that the government would want to provide tax incentives for this vital segment of the economy. However, the nation’s legislators instead chose to provide a permanent 40-percent tax cut to the country's wealthiest enterprises.

As a result, while massive firms now have a healthy infusion of resources to fuel their growth, small businesses are left at a disadvantage. Not only can small businesses not afford to issue bonuses and raises, they remain cash-strapped and unable to compete with their larger counterparts.

Disparity: The new tax law was sold to Americans as one that would stimulate the entire economy. Instead, it richly rewards the wealthiest businesses while ignoring those who most need it. The law almost totally ignores the potential of small businesses to spur economic growth.

The $1.4 trillion tax bill already is infusing the nation’s biggest corporations with billions upon billions of dollars of additional cash. These firms are using the money to attract high-quality employees, build new facilities, and acquire new equipment.

Small businesses simply can't keep up, especially after being left out of this round of substantial tax cuts. To put it differently, the corporate behemoths are using the benefits of the new tax law to increase the disparity between the “haves” and “have-nots” in the country.

In conclusion, the idea to cut taxes to stimulate the economy seems sound. Unfortunately, the U.S. Government chose to take this opportunity to enrich corporate titans rather than small businesses.

In short, the new tax law impacts small businesses by making it harder to retain quality workers.

It also creates an unfair atmosphere that harms the very class of businesses that have the ability to deliver the type of economic recovery the law professes to encourage.

Edward Schinik serves as both Chief Operating Officer and Chief Financial Officer of Yorkville Advisors and is responsible for the Investment Manager's Accounting Department and operational infrastructure.