While the overall economy is still digesting the effects of the new tax code, the nation’s small businesses are reaping the benefits of the tax cuts, by using their savings to invest in their businesses.
“The new tax law has had an immediate positive impact on my family business’ ability to invest in our store and local community,” Wettlin Treppendahl, fourth-generation retailer and owner of Treppendahl Super Foods from Woodville, Mississippi said at a congressional hearing on July 25.
Small business owners including Treppendahl shared their experiences about the impact of tax reform on their operations and their business outlook at the hearing titled “The Tax Law’s Impact on Main Street.”
In his testimony, Treppendahl said he felt more confident in investing in his store and employees. As a direct result of tax cuts, he upgraded and replaced 12 doors in the frozen foods section of his store during the past few months.
“That may not sound like a big project to some people, but that investment cost over $65,000 and most importantly provided work for our local refrigeration company,” he said.
Tax reform has also allowed the company to provide all full-time workers with raises, he said adding that this has boosted employee confidence.
President Donald Trump signed into law the Tax Cuts and Jobs Act in December last year. The new code reduces the corporate and individual tax rates. It also doubles the standard deduction and expands the child tax credit for individual taxpayers.
For a small business or a business that is organized as a pass-through entity, the new bill offers a deduction of 20 percent off of their top tax rate.
“The recent tax reduction in and of itself will have a positive impact on our employees and our business in 2018 and beyond,” Gary Ellerhorst, president and CEO of Crown Plastics from Harrison, Ohio said in his testimony.
According to Ellerhorst, however, tax reform is not the only factor that is boosting the small business confidence.
“When augmented by reduction in regulation and, most importantly, the hugely positive outlook by business leaders and consumers which started the day after the 2016 election, the resulting booming economy takes that positive impact of the tax bill and increases it exponentially,” he said.
Besides tax cuts, the tax reform package provided a number of expensing provisions to further assist small businesses. The immediate business equipment expensing threshold, for example, was increased from nearly $500,000 to $1 million.
“Until last year, many companies, including us, didn’t want to spend their money,” Tiberiu Czentye, an immigrant from Romania and CEO of All Pro Solutions from Rock Hill, South Carolina, said in his testimony.
“Because of this big tax cut, any entrepreneur can see the opportunity to invest in its company with the goal to make more money for the company and its employees. Good feeling,” he added.
Czentye’s company manufactures CD and DVD duplicators, and Blu-Ray publishers. Because of the tax savings, the company has begun to buy new inventory and expand the business. Czentye currently has 10 employees and is willing to hire between 2 and 4 more people.
“Last year we used to receive 200-300 resumes for a job listing comparing to 20-30 this year,” he said. “It’s clear why the economy is booming, people have jobs and the competition is higher. I have to increase my employees’ wages and when we hire, offer more than we did a year ago.”
The new tax law has also doubled the exemption threshold for the estate tax, also known as the death tax. This amendment is a big win for small business owners, as many of their businesses are family owned and passed down from one generation to the next.
“The estate tax has been a significant concern for our business in the past because it could drive our family store out of business,” Treppendahl said. “Supermarkets are somewhat unique in that most of our assets are non-liquid, tied up in property, inventory, fixtures, and equipment. Paying a big estate tax bill could mean going into debt or selling off part of the company,” he explained.
“I am concerned, however, that the provision will sunset after 2025,” he added.
Many individual tax provisions will expire by the end of 2025, and the old rules will take effect unless the provisions are extended, according to the new code.
Republicans in the House of Representatives are currently working on the second round of tax reform, which would make individual provisions permanent.
“The tax cuts did benefit most small businesses and most Americans. I think that was illustrated here today,” Rep. Steve Chabot (R-Ohio) and the Chairman of the House Committee on Small Business told the Epoch Times after the hearing.
According to Chabot, the permanency will eliminate the uncertainty for taxpayers and make the tax cuts more effective.
“That’s why I really think we need to make it permanent,” he said.
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