Often, the doings of the federal government seem a world away. When it comes to tax law, however, they always manage to arrive squarely at your doorstep. For local business owners, this is the case with the Tax Cuts and Job Act passed by Congress in 2017.
The good news is many of these changes are beneficial. Some 83 percent of small business owners reported feeling optimistic about the tax changes, according to a recent poll. The bad news is there are significant modifications to how you’ll be filing. Change can be difficult, particularly when it pertains to a situation you already find daunting.
A good tax accountant can help you navigate any tax modifications painlessly, and work to get you the tax breaks designed expressly for someone in your shoes. Meanwhile, let’s look at some ways the new tax policy will affect your local business.
Pass-Through Businesses Get A Deduction
If you’re a “pass-through business” and have made less than $157,500 per year—$315, 000 for those who are married, filing jointly—you’re likely to get a welcome tax deduction.
If you’re wondering what pass-through means, it doesn’t signify that you own a fast-food restaurant with a drive-thru. It means you’re operating as a partnership, S corporation, Limited Liability Corporation or sole proprietorship.
As a pass-through business owner, you may be able to deduct as much as 20 percent of your qualified business income. If your company exceeds the income threshold for pass-through businesses, you may still get a portion of the deduction.
State and Local Tax (SALT) Deduction
Local business owners operating in states with high income and property taxes were formerly able to deduct 100 percent of certain local tax payments. Taxpayers who itemized their deductions were each able to write off their property taxes. They could also choose between deductions in one of two categories:
- Income tax
- Sales Tax
The SALT deduction is still available. Now, however, a ceiling of $10,000 has been put on the number of SALT deductions you can take.
Employers Get Incentives For Treating Employees Well
There are some new incentives, available beginning the 2018 tax year, for employers who treat their employees well. Small businesses who provide workers with family and medical leave in the course of tax years 2018 and 2019 may qualify for a new business credit.
The Exclusion Amount For Estate And Gift Taxes Is Larger
Forward-thinking business owners should be pleased to hear that starting with the 2018 tax year, you ’re now able to pass on both your business and financial legacy tax-free. Individuals once had to make less than $5.49 million o be exempted from the estate tax. That number has been doubled, with the exclusion threshold resting at $11 million for individuals. Married couples don’t have to pay estate taxes unless they’ve received at least $22.36 million.
If you have giving on your mind, you can also celebrate the fact that the annual gift exclusion has been raised from $14,000 to $15,000.
Some Deductions Have Disappeared Or Become Harder To Take
Some key business deductions your company may have relied in the past have disappeared or are now harder to take.
Entertainment expenses, like those courtside seats you were once able to toss at valued clients, used to be 50 percent deductible. Entertainment expenses are no longer deductible. In good news, entertainment events aimed at employees, like your annual Christmas party, are still 100 percent deductible.
Meals for clients
If you take clients out for a meal, you can still deduct 50 percent of the bill, as always. There’s now a caveat, though. If entertainment is included—say you attend a performance at a local dinner theater—you must purchase the meal separately from the entertainment to deduct its cost.
Business Loan Interest
Formerly, you could deduct any interest paid on a business loan. Now, businesses can only write off interest costs equal to 30 percent of their adjustable taxable income. You may be able to claim more if your small business made $25 million or less last year and two years previous, but that’s a discussion you may want to have with a tax accountant.
Operating Loss Deduction
As they say, every cloud has a silver lining. And every bad business year used to carry with it some real tax benefits. Prior to the tax changes, if you were in the red for the year you could choose one of two options:
- Reduce any taxes paid in the past two years
- Reduce future taxable income for the next 20 years.
Under the new tax law, your Operating Loss Deduction can only be applied to current and future years. Further, you can only deduct 80 percent of losses in any given year.
At AA Tax and Accounting Services, it’s our business to stay up-to-date on all the latest tax changes. We’re ready to help you file your taxes for your local business, taking full advantage of tax breaks designed especially for someone in your shoes. Contact us today to make your appointment.