Tax Season 2019: What Small Businesses Need to Know About the Tax Cuts and Jobs Act Changes

Tax Season 2019: What Small Businesses Need to Know About the Tax Cuts and Jobs Act Changes

In 2017 the Tax Cuts and Jobs Act was passed, one of the most significant set of changes to be made to the United States tax code in almost a century. The changes, which went into effect in 2018, will now be reflected on taxes filed spring of this year. For small businesses, there were several benefits included in these changes, ones that can help you save money this tax season.

Receive a 20% Business Income Deduction

Sounds good, right? The Tax Cuts and Jobs Act reform offers a huge tax cut to all C corporations in the United States, but most small businesses aren’t structured as a C corporation. Thankfully, the reform didn’t exclude small businesses. Sole Proprietor, S Corporations, Partnerships, and LLCs are benefiting from a new tax deduction known as the “20% Qualified Business Income Deduction”.

Your business can take advantage of this deduction if your taxable income is less than $157,500 for individuals ($315,000 for married individuals filing jointly). If you qualify based on income, then you’ll be able to deduct 20% of the net income of your business this tax season.

Take Better Care of Your Family’s Next Generation, Tax-Free

The new reform bill has doubled the exclusion amount you can take advantage of with your Estate Tax. If planning your estate in order to create a legacy for your family is important, then knowing about this change is important.

Estate Tax is applied when the estate of a deceased person is transferred to new owners. That is, unless the estate falls under the exclusion amount. Increasing the exclusion amount for Estate Tax, then, can dramatically improve what you’re able to leave behind for your family. Thanks to the new reform, the exclusion amount is $11.9 million for individuals ($22.36 million for married couples).

This good news does have an expiration date, however. In 2026, the exclusion amount will go back to $5 million unless Congress steps in.

Understanding the New Mortgage Interest Deduction

The new reform has changed how Mortgage Interest Deductions work. The result? Fewer people will be able to use this deduction on their tax returns this year. When filing taxes, you decide how you want to make your deductions. You can either itemize them individually or you can use the specific amount Congress has set, which is known as the Standard Deduction.

It’s in your best interest to always use the larger deduction on your return.

What the latest reform has done is double the Standard Deduction (from $12,700 to $24,000), which means the majority of people won’t want to itemize their deductions - the new Standard Deduction amount is likely to be higher.

One big update in mortgage interest deduction: It is now limited to new mortgages that are below $750,000. (In 2017, the number was $1 million.)

Enjoy 100% Bonus Depreciation

Most small business owners are well-aware of depreciation, the ability to enjoy a tax deduction by writing off gradual wear and tear of property. Of course, the schedules used to figure out what can be used for depreciation and and what rate are far from simple. And, in some cases, it can take decades before you ever see the actual benefit of depreciation.

Congress has been working on Bonus Depreciation since 2002 to help businesses receive tax savings in a more timely manner. And, with the latest changes for 2018, the deduction has reached an impressive 100%.

What can you deduct using this 100% Bonus Depreciation?

“Personal property used for business purposes that remains useful for twenty years or less qualifies.” Things that fall under that category are cars, computers, equipment, machinery, office furniture, etc. Property that is tied to a permanent location (such as real estate) does not qualify, however.

Take Advantage of Retroactive Refunds

Did you overpay your taxes in 2015, 2016, and 2017 as a small business? If you did, then there’s a good chance you can get your money back. Retroactive refunds allow you to look at your returns for any missed tax savings, getting your money back from the previous three years.

According to many experts, 93% of business owners have paid too much in taxes.

While the new reform didn’t change how retroactive refunds work, it’s still good to remember that this is available to you as a business owner.

Ready for tax season?

Here are three final tips to keep in mind:

1. Ask your CPA about the 20% Business Income or Bonus Depreciation Deductions to see if your business can qualify. Learning what changes can be made in your business in order to capitalize on these savings can be a game-changer, especially for small businesses.

2. Start using the Gift Tax exclusion to begin passing your estate to the next generation. This allows you to gift up to $15,000 each year per person without being taxed.

3. Look into retroactive refunds to see if there is money that can be returned to you. Ask your CPA for help looking over your past three years of returns.