Tackling Taxes: Small-Business Essentials for 2019
When it comes to filing small business taxes this year, it’s important for owners to be familiar with the new tax legislation and any changes that may concern their businesses. Knowing what exactly will affect your 2018 taxes (to be filed April 2019) can help you better understand what savings opportunities may be around the corner in the new fiscal year. Here’s the basic rundown of the most important tax changes and rules that companies should know.
Highlights of the New Tax Law
One of the highlights of the Tax Cuts and Jobs Act (TCJA) signed into law in 2017 is a sweeping overhaul of tax brackets, most notably to the corporate tax rate. The graduated system from years prior is now simplified with a standard, permanent 21% flat rate for every corporation.
Another big perk is a much-buzzed-about 20% pass-through deduction against qualified income. While it doesn’t apply to all businesses, it does give certain sole proprietors, partnerships, LLCs and S corporations a break. C corporations are not eligible for the new deduction, and certain service-based companies will have theirs phased out at amounts earned above $157,500 for single people and $315,000 for married couples. (Businesses that may be excluded include any company where the “reputation and skill” of the owner or workers is the primary asset of the business. Some other restrictions apply and can be referenced in IRS guidelines.) Once a company goes over these phase-out amounts, there are also some restrictions based on income paid to workers.
Section 179 now states that businesses purchasing property and equipment can expense up to $1 million of qualified property, instead of the previously capped $500,000, and the types they can expense now include roofs, HVAC and security systems. There is also a $2.5 million threshold (formerly $2 million) for property purchases before it’s phased out dollar for dollar. An additional change raised the first-year “bonus depreciation” deduction to 100% for the first five years – instead of just 50%. Everything but land or buildings can be completely written off in this manner, including used equipment (which wasn’t covered until the tax changes.) This bonus depreciation is set to stand for the next five years, with a 20% decrease until its 2027 expiration.
Other Changes to Note
There are a few little-known tax changes that may affect your benefits packages and how workers pay their tax bill, too. Some of those adjustments that businesses should be aware of include:
- The TCJA eliminates deductions for client “entertainment” expenses, such as buying theater tickets. The 50% deduction for meals enjoyed with a client, prospect or another business contact — while in the course of doing business — still stands.
- Companies can no longer claim a deduction for transportation “fringe” benefits to employees, such as bus passes or on-site parking. Bicycle commuting reimbursements are still allowed and can be a deduction for the employer but must be included as wages for the worker and reported as such.
- Qualified moving expense reimbursements paid to workers must be reported as income and are subject to federal income tax.
- Employee achievement awards may be excluded from their wages if they meet certain conditions and are considered tangible personal property. Gift cards, cash (or equivalents), tickets to events, meals or lodging do not qualify for the exclusion.
Consult a Professional
As with anything that has the potential to cause fines or unneeded headaches, consider doing your small business taxes correctly by consulting a pro. Those who think they will owe $1,000 or more when they file each year should be making estimated quarterly payments. You’ll also want to be sure to do property withholding for your employees, who may not yet be aware how the new tax law has affected what they owe. Have them fill out new W-4 withholding forms at least annually to stay up to date with IRS changes.
And finally, if you don’t have an accountant who handles taxes, consider getting one. Even if you can’t have a person on staff, an independent tax consultant can be helpful by checking in at least quarterly to ensure you are staying in compliance and planning for major changes. All companies — not just those with employees — would be wise to heed the advice of those who understand both the benefits and the implications of new tax laws.