Say what you will about President Donald Trump, the folks who run Butler & Messier Insurance don’t have any qualms.
They estimate that the federal tax overhaul of 2017 has shaved tens of thousands of dollars off the Pawtucket insurance agency’s federal tax bills.
The legislation has been criticized for benefitting large corporations and the rich, while falling short on job creation.
But one thing is true; the reforms the overhaul brought about have put more dollars back into the pockets of many small-business proprietors – the owners of Butler & Messier included.
“It really was a big help,” said Bruce Messier, the firm’s vice president of sales.
Messier said the savings allowed the firm to pay off a business loan and it freed up cash for more staffing.
“It was almost a 20% tax break,” he added.
He was referring to the new Section 199A deduction. Under the overhaul, many individuals, including owners of small businesses operated through sole proprietorships, partnerships, “S” corporations, trusts and estates, may be eligible to deduct up to 20% of their qualified business income.
Generally, larger “C” corporations – those taxed separately from their owners – are not eligible for the 199A deduction.
Messier, who voted for Trump in the 2016 election, said the firm wasn’t sure how it would benefit under the tax reforms until the firm’s accountant detailed it.
“The tax reform benefit in [Butler & Messier’s] situation predominately comes from the Section 199A deduction,” said Lynn O’Marra, a principal in the tax department at the Blum, Shapiro & Co. PC accounting firm in Cranston, whose clients include Butler & Messier.
“It is an insurance business, so they do not have significant capital asset expenditures that would provide other benefits under the [tax reform],” O’Marra added.
She explained the 199A deduction is just one way the reform benefits small businesses. Perhaps the best known part of the reform – the reduction of the corporate tax rate – generally does not apply to small businesses that are taxed as pass-through entities, as they are not subject to the corporate entity level tax, anyway.
Another way the tax reform benefits businesses, including small ones, is through “bonus depreciation,” O’Marra said.
‘It really was a big help. … It was almost a 20% tax break.’
Bruce Messier, Butler & Messier Insurance vice president of sales
Bonus depreciation allows a business to immediately depreciate up to 100% of the taxable value of certain purchased assets, such as equipment, machinery and furniture. Previously, she explained, businesses generally had to depreciate the cost of an asset over several years.
“That’s a big one,” O’Marra said about the bonus depreciation provisions.
Another part of the tax reform, she said, modifies the qualified property cost and expense limitations of Section 179. It also expands the definition of Section 179 property to allow the taxpayer (in this case, a small-business owner) to include as deductions certain improvements made to business equipment and property that may not otherwise qualify for bonus depreciation.
Aside from that, another reform benefit allows a taxpayer to now deduct up to $1 million from the cost of qualified business assets, with a phaseout threshold of up to $2.5 million. Previously, there was only a maximum deduction of $500,000, with a phaseout threshold up to $2 million, according to the Internal Revenue Service.
In addition, the tax reform added a new general business credit called the “employer credit for paid family and medical leave,” according to the Rhode Island Association of Public Accountants.
The provision allows qualified employers to claim tax credits based on wages paid to employees on family and medical leave.
To claim the credit, RIAPA said, employers must have a written policy in place that meets certain requirements, such as providing at least two weeks of paid leave to a full-time employee (prorated for a part-time employee). And the paid leave must be at least 50% of the wages normally paid to the employee.
Scott Blake is a PBN staff writer. Contact him at Blake@PBN.com.