New publication: Tax reform: What’s new for your business
This electronic publication covers many of the TCJA provisions that are important for small and medium-sized businesses, their owners, and tax professionals to understand. This concise publication includes sections about:
New webpage: Tax Reform for Small Business
This one-stop shop highlights important tax reform topics for small businesses. Users can link to several resources, which are grouped by topic.
For More information:
Tax Reform Small Business Initiative
*** More detail on THREE new features of the tax law that affect business owners.
1. 20% Deduction of Business Income
Eligible taxpayers may now deduct up to 20 percent of certain business income from domestic businesses operated as sole proprietorships or through partnerships, S corporations, trusts, and estates. The deduction may also be claimed on certain dividends. Eligible taxpayers can claim the deduction for the first time on the 2018 federal income tax return they file in 2019. This provision is the result of tax reform legislation passed in December 2017.
Here are some things business owners should know about this deduction:
The deduction applies to qualified:
– Business income
– Real estate investment trust dividends
– Publicly traded partnership income
Qualified business income is the net amount of qualified items of income, gain, deduction and loss connected to a qualified U.S. trade or business. Only items included in taxable income are counted.
The deduction is available to eligible taxpayers, whether they itemize their deductions on Schedule A or take the standard deduction.
The deduction is generally equal to the lesser of these two amounts:
– Twenty percent of qualified business income plus 20 percent of qualified real estate investment trust dividends and qualified publicly traded partnership income.
– Twenty percent of taxable income computed before the qualified business income deduction minus net capital gains.
For taxpayers with taxable income computed before the qualified business income deduction that exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction may be subject to additional limitations or exceptions. These are based on the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid by the qualified trade or business, and the unadjusted basis immediately after acquisition of qualified property held by the trade or business.
Income earned through a C corporation or by providing services as an employee is not eligible for the deduction.
Visit the IRS Website Qualified Business Income Deduction FAQ’s for more information.
2. New 100-percent depreciation deduction benefits business taxpayers
Businesses are allowed to write off most depreciable business assets in the year they place them in service.
Here are some facts about this deduction to help businesses better understand how to claim it:
The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property.
Machinery, equipment, computers, appliances and furniture generally qualify.
The 100-percent depreciation deduction applies to qualifying property acquired and placed in service after Sept. 27, 2017.
3. Tax reform brings changes to fringe benefits that can affect an employer’s bottom line
*** Entertainment Expenses & Deduction for Meals
The new law generally eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.
However, under the new law, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present, and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact. Food and beverages that are purchased or consumed during entertainment events will not be considered entertainment if either of these apply:
they are purchased separately from the entertainment
the cost is stated separately from the entertainment on one or more bills, invoices or receipts
*** Qualified Transportation
The new law also disallows deductions for expenses associated with qualified transportation fringe benefits or expenses incurred providing transportation for commuting. There is an exception when the transportation expenses are necessary for employee safety.
*** Bicycle Commuting Reimbursements
Under the new law, employers can deduct qualified bicycle commuting reimbursements as a business expense. The new tax law suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income. This means that employers must now include these reimbursements in the employee’s wages.
*** Qualified Moving Expenses Reimbursements
Employers must now include moving expense reimbursements in employees’ wages. The new tax law suspends the exclusion for qualified moving expense reimbursements.
There is one exception as members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income if they meet certain requirements.
*** Employee Achievement Award
Special rules allow an employee to exclude achievement awards from their wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies the definition of tangible personal property