Small business owners often struggle to compete against larger corporations. Multinational, billion-dollar companies have access to teams of attorneys, shareholder funding, and other resources that smaller companies simply cannot match. When profit margins are slimmer, increases or decreases in taxes can significantly affect a business’s profitability. President Biden has pledged to decrease the financial burdens that small business owners must shoulder through legislation included in his Build Back Better (BBB) proposal. Whether or not this proposal passes has yet to be seen. However, understanding the Biden tax increases on small businesses is important for owners so that they can better prepare for potential future tax liabilities. If you are a small business owner with questions about your taxes, including the possible increases under the Build Back Better plan, consider contacting the experienced legal and financial professionals at CPA Attorney at (740) 420-0217. 

What Does the Build Back Better Plan Propose? 

On August 19, 2021, the White House released a fact sheet that explains how the Biden administration expects the Build Back Better agenda to help small businesses see more tax fairness across companies large and small. According to the statement, small businesses would see four major benefits from the plan:  

1. A more level playing field with large corporations 

2. Tax cuts for the majority of small business owners 

3. Federally funded paid leave programs 

4. Increased access to funding and capital  

Leveled Playing Field 

Large corporations often avoid paying their fair share of taxes by using offshore tax havens, funneling profits and manufacturing overseas, and taking advantage of existing loopholes in the tax code. Most small businesses do not have the resources to do the same. To combat the problem of large corporations avoiding taxes, the BBB plan proposes to increase the corporate tax rate from 21 percent to 28 percent, enacting a 15-percent minimum tax on book income of corporations making over $400,000 in profit per year, reducing incentives for corporations to move profits overseas, and strengthening the global minimum tax for multinational corporations.  

Ancillary Tax Cuts for Many Small Business Owners 

The Build Back Better plan also creates tax incentives for small business owners who meet certain criteria. For owners with children, the BBB agenda proposes extending the existing child tax credits put in place during the pandemic. Additionally, the plan calls for tax cuts and credits for small business owners who purchased health care for their employees through the Affordable Care Act. 

Paid Leave Programs 

President Biden’s proposal aims to help small businesses compete with larger corporations for employees by creating a federally funded paid leave program. The program would provide federal money for wage replacement for employees who take paid family or medical leave and could help small business owners create competitive compensation packages to attract and retain employees.  

Increased Access to Funding  

The BBB agenda plans to provide a substantial increase in funding the Small Business Administration for the purpose of providing loans, grants, and awards to small business owners. The program would specifically target small businesses in underserved and low-income areas.  

How Would the Build Back Better Plan Affect Small Businesses?  

There are many distinct parts to President Biden’s proposed plan, and it is impossible to know which parts of the plan will become law until the legislation is passed. However, many financial, political, and economic organizations have analyzed the proposed terms and speculated on how changes to the tax code could affect small business owners.  

Most small business owners (97 percent, according to the United States Treasury), would not be affected by an increase to the corporate tax rate. Only businesses organized as corporations would be affected by the higher rate, and the 28-percent rate would not be applicable to pass-through businesses like S-Corporations, sole proprietorships, and limited liability companies. Small business owners who earn over $400,000 in profit per year (or $500,000 for married owners who file jointly), would pay an additional tax of 3.8 percent on their business profit. 

Concerns About How Small Businesses Will Be Affected 

Not everyone is convinced that the proposed changes in the BBB plan would be beneficial to small businesses. For example, businesses that are organized as corporations will face an increased tax rate. Additionally, businesses that are owned by a trust will also pay increased taxes. There are also concerns that the 3.8-percent increase on business profits over $400,000 is not indexed for inflation. Because it does not take inflation into account, business owners may be paying more taxes on less profit several years from now. CPA Attorney can help with clarifying these everchanging laws and how they affect your business.  

What Is the Future for Tax Increases on Small Businesses?  

President Biden’s plan to stimulate the economy and help small businesses has a long way to go before it can be law. On November 19, 2021, the House of Representative passed a version of the bill that contained terms that were significantly scaled down in comparison to what the administration wanted. Some members of Congress are concerned about the overall cost of the proposal, and the House reduced many of the provisions in order to make the plan more financially palatable to fiscal conservatives.  

The BBB agenda would still need to be approved by the Senate and passed by both chambers of the legislature in order to become law. While many of the provisions are currently up for debate, there is still a possibility that some, or all, of the proposed legislation could pass through Congress before the end of President Biden’s term.  

Contact Us Today!  

No matter what happens with future legislation, small business owners can benefit from seeking experienced financial and legal advice in handling their business affairs. Tax issues can be complicated for business owners, but an experienced tax professional can help to ensure better understanding. To schedule a consultation and learn more about your legal rights, call the CPA Attorney at (740) 420-0217.