If you’re a small-business owner, you’ve probably heard of the 2018 tax bill—also known as “Tax Cuts and Jobs Act.” This bill has not only changed individual taxes, but it’s also reformed corporate taxes in the U.S.—especially for small businesses.
Here’s what you need to know:
The new pass-through income deduction
Originally touted as the tax break that would provide relief for small business owners, a 20% deduction is included in the bill for what they call “pass-through” income. This encompasses any income you receive from pass-through entities, including sole proprietorships, LLCs, partnerships, and S-Corps. Other types of income that are included under this umbrella include estate income as well as any dividends you may receive from Real Estate Investment Trust, or REIT, stocks.
That said, there’s one restriction that you should know about: the Tax Cuts and Jobs Act places a cap on the maximum amount of income that any people who work in what they deem “professional services” businesses (think lawyers, doctors, or consultants) can earn if they want to utilize this deduction. This pass-through deduction for professional services business will take effect for the tax year of 2018; people with AGI greater than $157,500 (single filers) or $315,000 (married filing jointly) will be impacted.
Tax Deductions That Are Gone
Many long-standing tax deductions managed to survive the processes that brought the latest tax bill into being— some with modifications, some in their original form. However, not every tax deduction made the cut, so to speak. After all, the sole purpose of the Tax Cuts and Jobs Act wasn’t to offer tax relief; lawmaker sought to make the U.S. tax code simpler. This simplification meant that some deductions that had been part of the landscape for some time are no longer valid.
Wondering which deductions are missing? Here are a few of the most significant tax breaks that were removed from the tax code:
- Casualty and theft losses — Previously, you could deduct the value of stolen items if your home was burgled. As of 2018, this deduction is only valid for any losses that are the result of a federally declared disaster.
- Moving expenses — In the old tax code, moving expenses were a deduction that was considered “above-the-line”– you could take them even if you didn’t itemize your taxes. This deduction was intended to counteract the expenses related to moving for employment. Today, this deduction is no longer permitted, unless you fall within the parameters of certain forms of active-duty military service.
- The “miscellaneous deduction” category — At last— a part of the tax code that was truly simplified! Previously, this consisted of a lengthy list of the deductions Americans could utilize. This list was applicable to the extent that they exceeded 2% of AGI, and it included items such as tax preparation expenses, expenses related to employment, and many more. Effective for the 2018 tax year, taxpayers can no longer utilize these deductions. Any taxpayers who have depended on these deductions in years past might feel a pinch now that they’re no longer available.
Tips to Make Tax Time Easier for Your Business
From January 1 through April 15, it might feel like a wild sprint to get your tax return filed on time. It might be the way you’ve always handled the annual pain that is tax time, but that doesn’t mean that you can’t break the cycle. Here are a few tips that will help ease the impending sense of panic!
- Think about taxes all year long. Small business owners should not treat income taxes as a once-a-year event. Rather, tax planning should be a year-round activity. Waiting until the last minute just complicates the tax preparation process, and it limits your money-saving options. If you want to truly simplify your tax return, take steps to ensure that you’re not left scrambling at the last minute.
- Be aware of law changes. Even with the help of a skilled professional, a small business owner must keep up with news related to laws. Staying on top of tax law will help you ensure your tax professional is doing the best possible job, and it keeps you informed as a business owner. Read the business papers and keep up with Congress’ work on tax laws. For instance, the Tax Cuts and Jobs Act will have a not-insignificant impact on next year’s tax return— if you’re not aware of the changes this bill will bring to your tax plan, you could find yourself facing significant payments that could have been avoided with a little bit of planning.
- Don’t make assumptions. Tax planning, to some extent, is a gamble. Never make business decisions assuming that particular tax breaks will pass, or that certain policies will be enacted. You don’t want to be caught short when your assumptions don’t become reality.
We’ve Got You Covered
These changes may be confusing. That’s not surprising— the tax code is extensive. However, there’s good news; if you work with experienced professionals, you don’t need to worry too much about them. At Steiner Business Solutions, we apply our know-how and training to make sure that you’re adhering to the updated tax code. We will calculate the effect of these changes on your bank account. Ready to talk? Click here to contact us today.