- The Tax Cuts and Jobs Act passed many economic benefits not just to corporations, but to individuals and small businesses as well.
- The 20 percent Qualified Business Income Deduction, for instance, benefits pass-through entities such as S corps and sole-proprietorships.
- The IRS has estimated that the time taken to file individual taxes under the Tax Cuts and Jobs Act has been reduced by up to 7 percent.
With the passage of the 2017 Tax Cuts and Jobs Act, many Americans immediately believed that the tax cuts applied to corporations and big business were where the benefits stopped. Why, many wondered, should they be in support of giving big business more of a break?
There’s just one problem with this line of thought: it’s not exactly the whole truth.
In reality, the Tax Cuts and Jobs Act actually passed many benefits to both individuals as well as small businesses — and the effects are real and far-reaching.
Consider this: the unemployment rate fell to a decades-low 3.8 percent, while wages increased year over year by 2.8 percent, according to the latest monthly jobs report. This pattern fits in with an unemployment rate that has consistently fallen since 2017.
Why is this, and what does it have to do with the Tax Cuts and Jobs Acts?
While political rhetoric abounds, it’s difficult to find educational material about the Act, which actually reformed the income tax filing process and also allowed for clearer, more helpful deductions for small business owners. Let’s use the example of small businesses and how the changes to the U.S. tax system affected them.
Under the Tax Cuts and Jobs Act, a new tax deduction is in place. The 20 percent Qualified Business Income Deduction was designed by Congress to benefit pass-through entities such as S corps and sole-proprietorships.
Instead of applying a universal tax cut to businesses of all sizes, the 20 percent Qualified Business Income Deduction allows small business owners to reduce their taxable income, therefore saving a large chunk of potential taxes owed as well as a large headache.
Now, let’s say a small business owner is able to knock 20 percent off of his taxable income. That resulting savings can then be utilized to turn around and invest in capital upgrades or hiring additional staff — an injection of life into the job market that may have been skipped over without more financial flexibility.
The benefits from the Tax Cuts and Jobs Act don’t stop there, however. It also assisted individual earners by simplifying the income tax filing process. This saves households both time and money as they navigate the tricky process of tax season.
The Internal Revenue Service has estimated that the time taken to file individual taxes under the Tax Cuts and Jobs Act has been reduced by up to 7 percent, meaning that compliance costs will be down as more Americans file their taxes more easily and with fewer mistakes.
In addition, an estimated 90 percent of individual earners are now eligible for financial relief in the amount of up to $1400 for individuals and $3000 for families.
With the simplification of the filing process, the additions and reforms of available deductions, and new initiatives designed for small business owners, the Tax Cuts and Jobs Act has thus far been able to meet many of its expectations. Of course, before the Act expires in 2025 there will be more modifications made to ensure the Act is operating as needed. However, the need for education about the details of this Act and how it benefits everyday Americans is necessary so that it does not get voted out due to misinformation.
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