The monumental new tax law has been hailed as a big win for businesses. For starters, the bill lowers the corporate tax rate to a flat 21% on all profits. Businesses can expect many changes this year. Here's a highlight of some of the more significant updates:
Pass-through businesses: There is now a 20 percent deduction for all pass-through businesses.
Deductions: Married individuals who own service-based businesses can only receive the 20 percent deduction if they make under $315,000 per year ($157,500 if single).
Tax Rate: The corporate tax rate will drop from 35 to 21 percent. The alternative minimum corporate tax rate will be eliminated.
Standard Mileage Rates: In 2018, the rate for business miles driven is 54.5 cents per mile, up from 53.5 cents per mile in 2017.
Section 179 Expensing - Expense deduction increases to a maximum deduction of $1 million of the first $2,500,000 million of qualifying equipment placed in service during the current tax year. (This has been made permanent rather than having to renew each year.)
Bonus Depreciation: Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.
Work Opportunity Tax Credit (WOTC): Extended through 2019, the Work Opportunity Tax Credit has been modified for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. There was no change to this tax credit under TCJA.
Research & Development Tax Credit: In 2018, businesses with less than $50 million in gross receipts are able to use this credit to offset alternative minimum tax.
Employee Health Insurance Expenses: For taxable years beginning in 2018, the dollar amount of average wages is $26,700 ($26,200 in 2017). This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.
Employer-provided Transportation Fringe Benefits: If you provide transportation fringe benefits to your employees, in 2018 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $260, and the monthly limitation for qualified parking is $260.
As you can see, the reform provides many tax benefits for business owners, but it can be quite complicated. Please call our office to guide you through these updates. (512) 291-9955.