New Tax Laws and Your Small Business
The Tax Cut and Jobs Act (TCJA) means a number of changes for small business this year and in years ahead.
Smiles abound since the TCJA became law on December 22, 2017, with the implementation of an almost double standard deduction on Form 1040 for 2018– –which increases to $12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly. And, it’s even more if you’re over 65.
There are several other changes that will affect personal income taxes, but what about tax changes for your small business?
You’re in luck if you’re a “pass-through” business entity (one that doesn’t pay corporate income tax) such as sole proprietorships, partnerships or singlemember limited liability (LLC) companies. Instead, “pass-through” income is taxed as individual income, and that tax rate has been reduced. Pass-through businesses will be able to deduct 20% of qualified business income.
According to the Brookings Institution, about 95 percent of small businesses in the U.S. are “pass-throughs.”
Businesses can expense more under the new law, and there are changes to depreciation limits for passenger vehicles placed in service this year. The bonus depreciation percentage increases to 100 percent for qualified property, and more types of qualified property have been added.1
Be sure to suggest to your employees, if they haven’t already done it, that a quick “paycheck checkup” with the IRS Withholding Calculator would be helpful, particularly since there are so many changes to the tax law for 2018. They may like adjusting their withholding if they can get more money in their paycheck. Plus, no one wants unpleasant surprises or to be penalized for underpaying taxes.*
On the other hand, there are changes that eliminate or reduce some familiar business deductions, like travel costs, meals and entertainment.
In addition to tax breaks for businesses, Rick Woods, CPA at MCM, notes several employer deductions that have been eliminated, like the cost of providing qualified employee transportation fringe benefits (for example, parking allowances, mass transit passes and van pooling). 2
As a small business owner, you need to be aware of all the TCJA changes to the tax laws and how they affect your business. Start planning now. If you don’t already use one, this may be the year you should consult a certified public accountant (CPA) or other tax professional—and do stay informed.*
*This publication does not, and is not intended to provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations.