The Impact of Tax Reforms on Small Businesses

The current administration is discussing implementing changes to the corporate tax code. And while, allegedly, bigger corporations will be affected the most, small businesses fear the changes will hit them hard.

The boldest statement is transitioning to a corporate tax of 28%, to recover from economic losses. The second significant change could require gig companies to make changes. Thus, individual contractors could have their status changed to employees. As a result, businesses will have to pay more taxes, bringing more economic benefits.

The federal government announced that their main objective is big corporations, many of which don’t pay taxes. According to state officials, small businesses will not be affected by many of the changes. Moreover, several of the changes everybody feared will not come into effect at all. For instance, the increase of the payroll tax contribution for Social security will not change.

Small businesses state that they need more support from the federal government. The Biden administration made loose promises to support small family-owned businesses and farms, but without offering any details. A problem is that business owners fall in the highest income brackets when it comes to small businesses paying taxes.

Although the current administration started with bigger corporations, it is estimated that an income tax of 39.6% will hit many small businesses. Since the profits of small businesses are passed through the owners, their income taxes will make them think twice about how profitable their businesses are. And although the corporate tax increase is mainly oriented towards bigger corporations, small businesses that are structured as corporations will have to pay their share.

Experts estimate that the increase of corporate taxes will lead to companies reducing their investments. White House officials declared they intend to level up the discrepancy between large corporations that avoid paying taxes and small businesses. Reports disclosed that Fortune 500 companies paid 11.3% of taxes due to tax deductions and other facilities, while small business owners have to pay between 10 and 37% as income taxes. While corporate taxation may be fairer, experts estimate that the changes will negatively impact small businesses. We’ll have to observe how everything plays out and see if the authorities keep their word.