Arizona Small Businesses Face Major Tax Hike Threat

Categories: Arizona Business NewsArizona State News

Local small businesses in Arizona face potential tax increases that could impact their growth and sustainability.

News Summary

Arizona’s small businesses may experience a significant tax increase if the 20% Small Business Tax Deduction expires. A recent study warns that this could lead to about 49,404 job losses and a $2.9 billion drop in GDP over the next decade. The potential rise in combined federal and state tax rates from 21% to 25.9% poses serious threats to Arizona’s economic stability, particularly for small enterprises. Legislative efforts like the Main Street Tax Certainty Act aim to secure the deduction, but uncertainty remains as Congress deliberates.

Arizona small businesses are at risk of facing a significant tax increase if the 20% Small Business Tax Deduction, set by the 2017 Tax Cuts and Jobs Act, expires. A recent study from BusinessFinancing.co.uk highlights how corporate tax rates affect small businesses across the United States, indicating that Arizona’s combined federal and state tax rate for small businesses could escalate from 21% to 25.9%—an increase of $25,900 on a hypothetical profit of $100,000.

The concern regarding the potential expiration of this tax deduction holds greater weight as Arizona stands to suffer considerable economic repercussions. If Congress fails to extend the deduction, Arizona could see a loss of approximately 49,404 jobs and a $2.9 billion hit to its Gross Domestic Product (GDP) over the next decade.

According to the study, the federal corporate tax rate remains fixed at 21%, but Arizona imposes an additional 4.9% state tax on small business profits. This combination leads to a total tax burden of 25.9%, impacting a business’s ability to reinvest in growth, job creation, and local community development. The added pressure of potential increased tax liabilities could hinder the prospects of many small enterprises in the state.

The analysis also illustrates notable disparities in corporate tax rates across the country. Small businesses in Minnesota currently incur the highest tax burden, paying a total of $30,800 on profits of $100,000. In contrast, six states—including Nevada, Ohio, South Dakota, Texas, Washington, and Wyoming—do not impose any state corporate tax, allowing small businesses to retain more of their earnings. Other regions, such as Guyana, present extreme rates, charging $40,000 for the same profit margins.

The importance of the Small Business Tax Deduction cannot be understated, as it serves as a crucial lifeline for many small enterprises—particularly in Arizona. The recent intentions of the National Federation of Independent Business (NFIB) underscore the pressing need for congressional action to preserve this benefit for small business owners. Without the extension of the tax deduction, business owners may face staggering tax increases, severely affecting their financial stability.

Consider a small business owner in Arizona who has a personal income of $75,000 and qualified business income of $150,000. This scenario could see them facing a tax increase exceeding $13,000 in 2026, a substantial financial burden that many cannot afford. In response to these pressing issues, the NFIB has introduced a tax calculator to assist small business owners in estimating their potential tax increases should the deduction expire.

In legislative efforts, the Main Street Tax Certainty Act has been brought to Congress as a proposed solution to make the 20% deduction permanent. However, the bill has yet to be put to a vote, leaving many small business owners anxious about their fiscal futures. This situation amplifies the need for immediate congressional deliberation to avert what could become the largest tax increase for small businesses in decades.

As the deadline approaches for the expiration of the Small Business Tax Deduction, Arizona small business owners, advocates, and policymakers alike are faced with the implications of their decisions. The potential economic fallout, marked by the loss of jobs and GDP, emphasizes the importance of timely interventions in Congress to safeguard the financial health of small businesses across the state.