Tax time is often a nightmare for small business owners, who face a maze of quarterly estimates, payroll taxes, and various deductions. Recently, the 199A deduction has emerged as a critical lifeline, allowing many businesses to deduct 20% of their income. However, this essential tax relief is at risk of disappearing when the 2017 Tax Cuts and Jobs Act expires at the end of 2025, unless Congress acts to make it permanent. For small business owners, this uncertainty is not only frustrating but also impacts their ability to plan for the future.
The 199A deduction targets "pass-through" entities like LLCs, which make up a significant portion of small businesses. Instead of benefiting large corporations, this deduction is crucial for local entrepreneurs who create jobs and drive community growth. Erin Myles, founder of Brave Daughters, emphasized the importance of this tax benefit: “For small businesses, any amount of money we’re able to deduct is helpful.”
Currently, small business owners operate at a disadvantage compared to their larger competitors, who can afford dedicated teams of tax professionals. A staggering 80% of small business owners believe the federal tax code creates an "unequal playing field." The 199A deduction is a rare equalizer in the battle against larger firms, acknowledging the unique challenges that smaller outfits face.
The reality of the 199A deduction may contradict popular misconceptions; it is not a windfall for small business owners. Eligibility requires a taxable income below a specific threshold, which means that many small business owners use the savings to reinvest directly into their operations. Nic Trapani, owner of Door County Candle Company, stated, "199A is something we’ve been able to take advantage of, and it’s part of our strategy." His investment strategy focuses not on luxuries but on necessary upgrades like machinery and staffing.
These reinvestments create a ripple effect within local communities. For instance, Door County Candle Company hires extra workers during peak seasons, influencing local economies. However, the uncertainty surrounding the 199A deduction has left small business owners like Nic reconsidering their staffing and operational strategies. “Depending on how [the 199A decision] pans out, we may have to draw back on staffing at the end of the year,” he cautioned.
The far-reaching impacts of the 199A deduction extend into social contributions, as small businesses often play pivotal roles in their communities. Angel Johnson, founder of ICONI, underscored this when she mentioned how her tax savings allowed her to offer buyer incentives and launch new collections. “Every dollar matters,” she said, showcasing how financial breathing room allows small businesses to engage with their communities, sponsor events, and support local initiatives.
Despite broad support for the idea of making 199A permanent in Congress, small business owners are left feeling abandoned as they face bureaucratic hurdles and increasing challenges. “When you’re a small business owner, it can feel like there are so many things in your way,” Erin Myles noted, highlighting the overwhelming obstacles within the current system.
The current debate over the 199A deduction doesn’t only affect small business finances; it speaks to deeper systemic issues within the federal tax code. As Angel aptly put it, “There’s a lack of visibility or maybe even empathy for smaller businesses.” For millions of entrepreneurs, the fate of 199A is crucial. It translates into their ability to hire, grow, and contribute to their communities.
With small businesses employing 61 million workers—nearly half of the U.S. workforce—policymakers face an equation that’s simple yet urgent: support small businesses or risk their decline. The small business community is ready to create jobs and foster innovation, but they require the financial tools to thrive. As discussions in Congress unfold, the looming question remains: will small businesses get the relief they need to continue making a meaningful impact?
For more information, visit the original press release at Shopify.
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