As an addendum to our previous post on the Tax Cuts and Jobs Act (TCJA), there are a few provisions in this tax reform that are especially important to small business owners. Below is a summary of a few important developments that will impact our clients the most.
The most significant change is also the most complicated, allowing a potential deduction of up to 20% of your income from your sole proprietorship, partnership, S-Corp, trust or estate. The deduction is subject to limitations for married taxpayers with income over $315,000 ($157,500 for all others). The deduction is also subject to limitations based on the type of trade or business you are engaged in, and whether you pay wages out of the business. This new deduction is going to impact most small business owners, and should have you calling Tolonen Tax & Accounting today to make sure you qualify. It is complicated, but in this case, the juice will be worth the squeeze. Don’t miss your chance for this one!
Entertainment expenses are no longer deductible. You may continue to deduct 50% of the cost of business meals if you (or your employee) are present at the event and the food or beverages aren’t considered lavish or extravagant. There are no more 100% deductible meals for any purpose. We advise that to address this new limitation, you carefully consider your chart of accounts and review how you code certain expenses.
You can claim a larger 100% first-year depreciation deduction on qualified property (new or used). The new law increased the maximum section 179 deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. The expanded bonus or section 179 deductions are limited for passenger vehicles. If you can claim bonus depreciation, the greatest allowable depreciation deduction is $18,000 for the first year.
The carryback of net operating losses (NOLs) is repealed effective for tax years ending after Dec. 31, 2017. NOLs can now be carried forward indefinitely. In addition, NOLs generated after 2017 cannot reduce taxable income by more than 80%.
More “small businesses” can use the cash method of accounting (as opposed to accrual) starting in 2018 than previously allowed. To qualify as a “small business,” taxpayers must satisfy a gross-receipts test, having average gross receipts under $25 million (the previous limit was $5 million).
Reminder for new tax return due dates
Due dates changed last year for partnerships, C corporations and several other business returns. For calendar-year partnerships, the filing date is March 15. The filing date is April 15 for C corporations.
Contact Us Today
Tolonen Tax & Accounting is hard at work keeping up with the changes that impact you the most. If you hear of provisions that confuse or concern you, please reach out online for a consultation or call 480-897-2300.