DISCLAIMER: This article is for informational purposes only and does not constitute tax or legal advice. If you want tax or legal advice, please contact a qualified tax professional or attorney.
Small business owners constantly have a lot to think about, so it’s understandable that taxes may not always be top of mind. However, with most major provisions of the Tax Cuts and Jobs Act being implemented in 2018, now is the time to start making some smart moves to get the most out of your tax scenario this year, and the biggest refund come April 2019.
Intuit’s Senior Tax Analyst, Mike D’Avolio, has 5 tips to get ahead of planning for next year:
- New 20% Deduction for Qualified Business Income. One of the key tax reform measures provides a 20% deduction beginning in tax year 2018 for income earned from sole proprietorships, limited liability companies, partnerships and S corporations. The deduction begins to phase-out at an income level of $315,000 for joint returns and can reduce their effective marginal rate to a 29.6% maximum. But wage income is not eligible for the lower rates on business income.
- Entity Planning. Now that the corporate tax rate has been lowered to 21%, it might be time to examine your choice of entity, especially if you are a high-earning professional service provider such as a doctor, lawyer, or investment manager. Work with your accountant to determine the best entity structure to benefit you for Tax Year 2018.
- Depreciation Benefits. Been thinking about new upgrades? Business owners are now allowed to fully write-off the entire cost of new purchases (100% bonus depreciation), such as computers, furniture, equipment and vehicles, in lieu of depreciating the cost of the asset over a number of years. In prior years, you could deduct only 50% of the cost in year one. Under a companion measure, the government has doubled the popular Section 179 tax break from $500,000 to $1,000,000, which represents the amount of assets you can deduct in the first year. Business property qualifying for this deduction has been expanded to now include fire protection, alarm systems and security systems. The depreciation limits that apply to vehicle purchases have increased under the new law.
- Entertainment Expenses. Before you start running up large business meal tabs this year, remember that business related entertainment, amusement or recreation expenses are no longer deductible under the Tax Cuts and Jobs Act. However, meal costs incurred on business travel are still 50% deductible.
- Credit for Family and Medical Leave. As part of the new Tax Act, employers will be able to claim a credit based on wages paid to qualifying employees while they are on family and medical leave. To claim the credit you must have a written policy that provides at least two weeks of paid leave annually to all qualifying employees who work full time. Additionally, the paid leave must be no less than 50% of the wages normally paid to the employee. Be sure to set up this policy early in the year so you can claim the credit come tax time.