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What the New Tax Law Means for Small Businesses

These changes effect a variety of businesses from farms to larger corporations. It is recommended that you consult with your accountant to see if you are affected by any of these new tax changes. Some notable tax changes are as follows:

New Tax Law

Reduces the income tax rate on regular and personal service corporations from 35% to 21%. Some C Corporations could end up paying different amounts due to the elimination of the 15% rate on the first taxable $50,000.

Two new rules for taxpayers filing an income of $157,500 (individual) and $315,000 (jointly)

  • The break phases out for many professional service fields. The deduction will be zero for joint filers exceeding $415,000 and individuals who exceed $207,500

  • There are W-2 wages-paid limitations for high-income earners which caps the deduction at 20%

The 100% bonus depreciation is back and is said to last till 2022 before it phases out 20% each year after (applies to new and unused assets).

  • The maximum amount that can be expensed for new and used business assets instead of depreciating them is $1 million. This limitation will phase out dollar for dollar once more than $2,500,000 of assets are placed in service during the year.

New farm equipment is now depreciable over 5 years instead of 7 (does not include grain bins, fences or land improvements)

Personal assets used predominantly to furnish lodging are now depreciable property expenses. These include, but are not limited to beds, refrigerators, and hotel/dormitory/apartment style stoves.

  • Improvements made to commercial buildings: Roofs, HVAC equipment, fire protection and alarms, and security systems are depreciable property expenses as well.

Large vehicle tax breaks

  • If bonus depreciation is claimed, the 1st year ceiling is $18,000 for cars acquired after Sept. 27, 2017 and put into service in 2018. If no bonus depreciation is taken, the first-year ceiling drops to $10,000. Thanks to bonus depreciation, if you purchase a heavy SUV for your business, you can write off up to 100% of the cost. Furthermore, if you buy a heavy pickup truck for business use, you can expense up to the full cost.

No more writing off entertainment that is accompanied by clients

(sporting events, show tickets, etc.)

Now unable to deduct your employee’s parking or transit fees.

  • Still allowed $260 a month in pre-tax money for both parking and transit fees.

A couple filing a joint return is limited to $500,000 in such losses, while single filers can take no more than $250,000 in losses.

  • The amount of trade or business loss that exceeds these caps is nondeductible, and any excess can be carried forward (this limitation applies after application of the current passive-activity loss rules).

Exceptions when investment or business property is traded for similar property.

  • Any gain by the sale of such property is deferred in the case of a like-kind exchange. This break is applied to assets like real estate as well as tangible personal property like heavy equipment and artwork. The new law now restricts its use to like-kind exchanges of real estate.

C Corporations with average gross receipts of $5 million or higher over the previous three tax years weren’t able to use the cash method of accounting. The new law raises the threshold to $25 million.

  • Many more C corporations can use the cash method instead of the accrual method. This same $25 million threshold also applies to partnerships or LLCs with C corporation owners.

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