Are you aware of some latest changes this tax season? Do you know the effects this could have on your business? Today, we will be talking extensively about the latest changes in tax and its effect on your business.
The TCJA had changed how taxes are calculated. The new law changed tax rates and brackets, revised business expense deductions, increased the standard deduction, removed personal exemptions, increased the Child Tax Credit and limited or discontinued certain deductions. As a result, many taxpayers may need to raise or lower the amount of estimated tax they pay each quarter
Due to these far-reaching tax changes, the IRS had earlier urges all employees, including those with other sources of income such as self-employment, to do a Paycheck Checkup. This will help them avoid an unexpected year-end tax bill and possibly a penalty in the future.
Revised and new deductions for businesses
Qualified business income deduction: Do you know that you may now be eligible for a qualified business income deduction, also called the section 199A deduction? The deduction allows you to deduct up to 20% of your qualified business income (QBI), plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.
The two component deduction includes the QBI component and the REIT/PTP Component. Non-corporate taxpayers may be subject to excess business loss limitations. They need to apply at-risk and passive activity limits before calculating the amount of any excess business loss.
Net operating losses: You no longer have the option to carryback a net operating loss (NOL). You can only carry forward NOLs arising in tax years ending after 2017. The two-year carryback rule in effect before 2018, generally, doesn’t apply to NOLs arising in tax years ending after Dec. 31, 2017.
Meal and entertainment expenses: It also eliminates the deduction for entertainment, amusement or recreation expenses. It doesn’t allow food and beverages purchased or consumed during entertainment events as an entertainment expense, if they’re purchased separately from the entertainment, or stated separately from the entertainment on one or more bills, invoices or receipts.
Changes to fringe benefit deductions
You need to know about important changes to fringe benefit deductions. These changes can affect a business’s bottom line and its employees’ deductions.
Transportation fringe benefits. The new law disallows the deduction of expenses for qualified transportation fringe benefits to employees for commuting (except as necessary for employee safety).
Bicycle commuting reimbursements. Employers can now deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. The new law suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.
Moving expenses. Employers must now include moving expense reimbursements in employees’ wages. The new tax law suspends the former exclusion for qualified moving expense reimbursements.
Achievement awards. Special rules allow an employee to exclude achievement awards from wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits.
Changes to depreciation and expensing for businesses
The Tax Cuts and Jobs Act changed some laws on depreciation and expensing. These changes can affect a business’s tax situation.
Businesses can immediately expense more under the new law with Temporary 100% expensing for certain business assets. Also, Changes to depreciation limitations on luxury automobiles and personal use property.
The treatment of certain farm property has also changed. There’s now Applicable recovery period for real property. Use of alternative depreciation system has been put in place for farming businesses.
New and revised tax credits for businesses
A new employer credit for paid family and medical leave is now available. It’s generally effective for wages paid in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2020
Rehabilitation Tax Credit. The new law affects the Rehabilitation Tax Credit for amounts that taxpayers pay or incur for qualified expenditures after Dec. 31, 2017. It repeals the 10% credit for buildings placed in service before 1936. It keeps the 20% credit for expenses to rehabilitate a certified historic structure, but now required to prorate the 20% credit over five years instead of in the year they placed the building into service.
Small businesses. Are you a small business with average annual gross receipts of $25 million or less in the prior three-year period are to use the cash method of accounting. The law expands the number of small business taxpayers eligible to use the cash method of accounting and exempts these small businesses from certain accounting rules for inventories, cost capitalization and long-term contracts. Small business taxpayers can change to the cash method of accounting starting after Dec. 31, 2017.
Wrongful IRS levy
Individuals and businesses have more time to file an administrative claim or to bring a civil action for wrongful levy or seizure. The new law extended the time limit for filing an administrative claim and for bringing a suit for wrongful levy from nine months to two years.
Get updated about the changes this tax season and get prepared ahead for its effect on your business. Having issues with your tax? Talk to us at Jovynn Jackson. We are here to help you with your taxes.