Life moves fast, weeks turn into months and the days start getting shorter. Have you started to think about your 2018 taxes? Your estimated tax liability could look very different for 2018.
Here in the tax office, our life is a constant changing environment. Due to the Tax Cuts and Jobs Act (TCJA), we are studying up on how this tax law will be implemented as the IRS issues new proposed regulations. We want to make sure you have a heads up of the major points that will affect your taxes.
If you are self-employed as a sole proprietor, partner or S corporation shareholder, your business income is taxed on your personal return. These tax changes may affect how you pay quarterly installments of estimated tax. You don’t want any surprises as you plan for cash flow over the next few months.
Here are several changes that could affect the bottom line of many small businesses:
Qualified Business Income Deduction
What is the new Qualified Business Income Deduction (QBI)? Many owners of sole proprietorships, partnerships, trusts and S corporations may deduct 20 percent of their qualified business income to reduce their taxable income. The Section 199A deduction (or QBI Deduction) is new for tax years beginning after Dec. 31, 2017. Most new things have a learning curve and this complicated new law has a lot of restrictions. If you are a one of the Specified Service Businesses; such as health, law, accounting, performing arts, consulting, athletics or financial services your deduction may be limited. This is the first time you claim this new deduction on your federal income tax return, and we can guide you through how you may qualify.
The IRS has created a nice set of FAQs to give you more info on this new tax break. C Corporations do not qualify for the QBI deduction.
Bonus Depreciation allows 100 percent expensing for certain business assets
Businesses are now able to write off most depreciable business assets in the year the business places them in service. 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. Autos have specific special rules.
Fourth quarter is a good time to evaluate your business assets needs. If you need a new vehicle, machine, computer or other large purchase to invest in and help grow your business, we can discuss how much this will save you in taxes.
Entertainment and meals:
The new law eliminates the deduction for expenses related to entertainment, amusement or recreation. If you golf with clients or purchase season tickets to your favorite sports team, you will not be able to take that deduction any more.
However, 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 other conditions are met. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
Qualified moving expenses reimbursements:
Moving expenses (for the most part) are no longer deductible. Reimbursements an employer pays to an employee in 2018 for qualified moving expenses are subject to federal income tax.
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.
Our goal is to help you estimate your tax liability so that you can pay quarterly installments of estimated tax or understand what you will need to pay next April.