By: ProcurementIQ Analyst, Roshan Sathyanarayana
In mid-December, Republican legislators agreed to the Tax Cuts and Jobs Act, the largest modern overhaul to the United States tax code in over 30 years. The final details have been voted on by Congress and signed into effect by the President.
On the corporate side of tax reform, many of these changes have been made to incentivize domestic businesses to increase capital spending and invest in long-term projects. The largest benefits of this tax plan will go to high-income corporations, which will now pay a maximum 21% tax rate after originally being subject to rates ranging up to 35%. The bill will also allow businesses operating as pass-through entities, which refer to a form of business incorporation method that allows owners to classify business income as their own wages and pay taxes on those wages at their own individual rate, to deduct up to 20% of their income. Pass-through businesses make up over 90% of all business establishments in the United States, extending from entities such as real estate investment firms to family-owned retail stores.
With many of the changes having gone into effect January 1, 2018, businesses will have much of the current year to make key strategic decisions on how to best reduce their tax costs. Providers of tax preparation software and tax accounting services will be in high demand to combat the complexity of the new tax code. ProcurementIQ has identified a few additional industries that are likely to see the biggest impact from the bill. While many upstream businesses will benefit from higher demand, procurement departments will experience higher prices on several key products and services.