The Tax Cuts and Jobs Act (TCJA) does much more for businesses than lower corporate tax rates. With careful planning, your small business may realize big tax benefits under the new law. Here are several tax-saving opportunities for 2018:
Under Section 179, a business can now deduct the cost of up to $1 million of qualified assets a year, doubled from $500,000. But the Section 179 deduction is still limited to the amount of income from the business activity.
“The section 179 deduction now applies to certain property used in rental activities as well as certain qualified real property components.” – Rich Middleton, CPA
Also, the TCJA doubles the 50 percent bonus depreciation deduction to 100 percent for 2018, giving your small business greater flexibility.
“The new law extends the bonus depreciation deduction to used property, which was previously ineligible.” – Rich Middleton, CPA
See Also: New 2018 Capital Expense Rules →
The TCJA also increases depreciation deductions allowed for cars used for business driving. Specifically, it hikes the annual limits for luxury cars for each year in service. For instance, the first-year write-off for a car jumps from $3,160 in 2017 to $10,000 in 2018, not even counting bonus depreciation. If you’re shopping for a new business car, now’s a good tax time to buy.
For taxpayers owning a business taxed as a pass-through entity — like a partnership, S corporation or sole proprietorship — the new law creates a brand-new deduction generally equal to 20 percent of the business income. This effectively lowers the tax rate for owners. There have been conditions put in place to avoid abuses, especially for professionals and other taxpayers providing services. By keeping income below the thresholds of $157,500 for single filers and $315,000 for joint filers, you may benefit from the maximum 20 percent deduction.
“Current shareholders of “C” corporations should quantify and consider the impact of converting to an “S” corporation to take advantage of the qualified business income (QBI) deduction.” – Rich Middleton, CPA
Finally, you can still take advantage of various deductions and credits (albeit with certain tweaks), including tax breaks for research activities, interest deductions, net operating losses (NOLs) and a new temporary credit for family and medical leave wages.
“The new law imposes certain limitations on NOL’s, generally the lesser of the NOL or 80% of taxable income.” – Rich Middleton, CPA
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© MC 2018 | “Tax Tips” are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
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