Tax Insights

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Business taxes: year-end tax planning checklist

business taxes, tax reformWith year-end rapidly approaching, below are a few reminders for business taxes. These changes and strategies may affect your business in 2018. Be sure to discuss these with your tax professional!

  • Biggest change in 2018? The 20% deduction offsetting income from Partnerships, LLCs, S Corps, self-employed (Schedule C) and rental businesses.
    • The 20% deduction is calculated and deducted on the tax return of the individual, estate or trust owner.
    • The deduction brings the maximum tax rate of 37% down to 29.6% for business income.
    • The 20% deduction calculation is complicated and limitations are applied at the individual level (i.e. each partner or S Corp owner may receive a different deduction amount.)
    • The owners of certain service businesses (health, law, accounting, consultants, financial advisors and similar) LOSE the entire deduction if adjusted gross income exceeds $207,500 for single filers or $415,000 married filing joint.
      • The test includes all your income including wages, investment income, Social Security, unemployment, etc.)
    • New for rental businesses: qualifying for the 20% deduction may mean filing 1099s to service providers in 2018.
  • Thinking of buying new business assets? Other new deductions for 2018 include:
    • The Section 179 expensing election is now allowed for up to $1 million in property.
    • 100% bonus depreciation for both new and used property.
    • Higher automobile depreciation limits.
    • Cost segregation analyses on buildings are even more valuable.
  • Research & Development Credit. Qualified small businesses can use R&D credits to offset payroll taxes.
  • New limitations to losses and deductions in 2018
    • Entertainment expenses – no longer deductible (includes tickets to sporting events)
      • Business meals are still 50% deductible.
      • Entertainment that includes meal expenses – you can deduct 50% of meal expense if it’s separately stated.
    • Net operating losses – you must carry 2018 NOLs forward (no carryback allowed). 2018 and future NOLs are limited to offsetting 80% of one year’s income.
    • Excess loss limitations (individual limitation) – a current year loss is limited to $500,000 (married filing joint) in one year.
    • Business interest expense limitation (applies to large business with $25 million in receipts).
  • C corporation tax rates fall to 21%.
  • Like-kind exchanges (IRC 1031) are only allowed for real property exchanges (no auto, personal property, airplanes).
  • Affordable Care Act penalties still apply to large employers who don’t provide health insurance.
  • Partnerships and LLCs need to name a “partnership representative” under new IRS audit rules.
  • Do you have clients or customers in other states? The Wayfair case now allows states to require businesses to collect sales tax, even if you have no physical presence in state.

There’s still time to plan for your business taxes in 2018 and hopefully and hopefully save money!

Melinda Nelson, CPA