April 15 is a date that tax payers know well. For overachievers who file their taxes early, the date passes unmarked. For procrastinators, April 15’s weight is heavier than the reams of paperwork and piles of receipts they find themselves buried under as the deadline looms.
Regardless of the camp you fall into, there are a few things you need to know about filing for your business taxes this year, and they center on the Tax Cuts and Jobs Act (TCJA) of 2017.
Signed into law by President Donald Trump in December 2017, and enacted a month later, this new law — the largest tax overhaul since the Tax Reform Act passed more than three decades ago — will impact most taxpayers whether they are filing as individuals or businesses.
Here are a few tips for navigating this new law.
Qualified Business Income Deduction
Reexamine your business’ pass-through deduction amount. If your sole proprietorship brought in, say, $100,000 in profits last year, you may be able to use the Qualified Business Income Deduction to deduct up to $20,000 of that amount.
This deduction — also known as the Section 199A deduction — states that owners of S-corporations, limited liability companies, sole proprietorships, or partnerships now may be able to deduct up to 20 percent of their business’ profits.
In this instance, “income” includes domestic income from a trade or business, but does not include things like employee wages, capital gains, interest, and dividend income.
However, this is not a blanket deduction. Your amount of qualifying business income can vary depending on the type of business you own, your total income, and other qualifying factors. For instance, if your taxable income as a married couple filing jointly exceeds $315,000 — or $157,500 for all other taxpayers — the deduction is subject to limitations.
Meals and Entertainment Deduction
If you previously took advantage of deductions for business entertainment expenses (up to 50 percent), you might be out of luck when filing your taxes this year because the TCJA has eliminated that deduction. The Internal Revenue Service outlines entertainment as “activities generally considered entertainment, amusement, or recreation.”
However, you still may deduct 50 percent of the expense of business meals that you or your employees might incur with a current or potential client, consultant, or customer. The caveat: the legislation states that the food must not be “considered lavish or extravagant.”
If food and beverage purchases are made during entertainment events, deductions may be made if they were purchased separately. Alternatively, company qualifying-organized recreational and social activities such as holiday, birthday, and anniversary parties still are deductible.
Temporary 100 Percent Expensing
If you purchased any business-related equipment after September 27, 2017, you may qualify for a 100 percent write-off of those items’ value in the year of purchase. Previously, businesses were only able to claim 50 percent.
Moreover, the definition of eligible property has been expanded to include used qualified property. For instance, the law gives the example of used film, television, and live theatrical production equipment as items qualified for this 100 percent deduction.
If these new rules seem too daunting, don’t go it alone. Consider consulting a local tax expert for help.
For more information on TCJA and how it will impact your business, visit irs.gov or search for IRS Publication No. 5318.