2018 Business Tax Changes
The Tax Cuts and Jobs Act, which became law in December of 2017, cause a major overhaul of previous tax law. This change affects both business and personal taxes. In this article, we will go over 4 of the biggest 2018 business tax changes.
1. Corporate Tax Rates
In previous tax years, the corporate tax brackets were on a graduated scale, much like personal tax brackets.Previous corporate tax rates were 15%, 25%, 34%, or 35%. Under the new 2018 business tax changes, corporation tax is at a flat rate of 21%. Additionally, Alternative Minimum Taxes for corporations have been done away with.
2. Pass-Through Business Income Deduction
For the 2018-2025 tax years, there is a new deduction for sole proprietorships, partnerships, s-corporations, and LLCs. This new deduction can allow business owners to deduct up to 20% of qualified business income. Qualified business income is total revenues-total expenses. If you are single and make less than $157,500 ($315,000 married filing jointly) in taxable income, you can claim the full 20% of the deduction.
If your income is between $157,500 and $207,500 (single) or $315,000 and $415,000 (MFJ) you will only be eligible to take a partial deduction. Your deduction will be the greater of:
- 50% of W2 wages from the business or;
- 25% of W2 wages from the business plus 2.5% of the value of qualifying depreciable property.
For special service businesses, the deduction is completely disallowed when your taxable income is over $207,500 (single) or $415,000 (MFJ). Special service businesses include health, law, accounting, actuarial science, performing arts, consulting, athletics, and financial services.
3. Additional Depreciation
Under the 2018 business tax changes, there may be additional depreciation deductions available to you. Any qualified property that is bought after September 27, 2017, and placed into service before January 1, 2023, is eligible for an additional upfront depreciation deduction. Any property that was bought prior to September 28, 2017, but was placed into service after September 27, 2017, is eligible for only a 50% bonus deduction.
The full bonus deduction takes a 20% reduction a year starting in 2023. So in 2023, you would only be able to deduct an 80% bonus. 2024 would be 60% and so on.
4. Disappearing Deductions
Many common business deductions are no longer available or are now harder to claim. This includes:
- Entertainment Expenses: The cost of entertaining clients is no longer 50% deductible.
- Business Interest: Only interest expenses equal to 30% of adjusted taxable income are deductible. Previously, 100% of interest expenses were deductible.
Dealing with the Changes
This article just touches the surface of the 2018 business tax changes. To fully prepare for this year, meet with your tax preparer. If you do not know have a tax preparer by your side, then you could find one at companies like Wizz Accounting (https://www.wizzaccounting.co.uk/online-accounting-services/). They will help you to understand how these new tax changes will affect your business. They will also be able to help you with a plan for this year. Make sure to follow their guidance throughout the year to check in on your plan and see if any changes are necessary.
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