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New business owner tax has been a worry for businesses and start-ups across America, especially so for the expats among them. While the new business owner tax presents a number of considerations and disadvantages, there are a few benefits which can be drawn from the tax to some extent. Here at Santa Fe Relocation, we’re taking a closer look at what the tax is and how it impacts new business owners.
What is the new business owner tax?
In the coming years, tax planning for Americans abroad is set to become increasingly complicated as a new tax is introduced. Otherwise referred to as the ‘transition tax’, the new business owner tax will apply to all earnings of foreign corporations. To put that into perspective, the tax will be placed on 15.5% of earnings in the form of cash and cash equivalents, with no more than 8% on the remaining earnings.
The impact of the new business owner tax
Small businesses are permitted to keep cash available in order to cover the cost of their ongoing needs. Due to this, the 15.5% tax on the collection of assets could put business owners at danger.
In light of this strain, the co-founder of Greenback Expat Tax Services explained: “For smaller companies, especially companies set up by expatriates, this could put people out of business and be a negative life-changing event.”
“If you knew you needed to keep $100,000 on hand for working capital, it wasn’t taxed by the U.S., but now, the U.S. government is taxing that $100,000 at 15.5 percent.”
Instalment payment system
The new business owner tax will come as a surprise to several business owners across the world, and so in order to help business owners come to terms with this new tax, the IRL is allowing business owners to make instalment payments over eight years in order to eliminate liability. In short, the new tax applies to all foreign earnings of foreign businesses.
During the first five years, taxpayers are required to pay 8% of the total amount owed, but after the initial five years, payments increase. In the sixth year, taxpayers are required to pay 15%. From here, they are required to pay an additional 5% per year.
What does this mean for businesses moving forward?
Rob Hassett, an attorney at Business Law Partner explained that small business will see a large majority of their taxes decrease in 2018 and that “small businesses are going to see more savings and more money in their pockets.”
Despite this, not all features of the new business owner tax will benefit small businesses. The deduction of business travel costs, for example, may persuade individuals to work for larger corporations that have the funds to pay these fees. Richard Tannenbaum, the leader of the global mobility practice at Mazars USA, has warned: “It’s going to be a push in September to understand this and get calculation in place.”
For more information about the new business owner tax, get in touch with a member of our expert team on 0208 963 2513, today.