At the end of 2017, Congress passed the Tax Cuts and Jobs (TCJA) bill, making available the first major tax reforms for businesses in the last 30 years. The changes went into effect for 2018 and may have a big impact on your business. Make sure you understand how TCJA may change your deductions and what your tax bill will be this year and going forward.
Corporate Tax Rate Lowered
Instead of the graduated corporate tax rate that you’ve used for so many years, the biggest change has to be the reduction to a 21 percent flat tax rate for most businesses. This includes pass-through businesses like S corporations, partnerships, and sole proprietorships. Beyond offering relief to businesses of all sizes, it was also done to incentivize hiring and reward companies with plenty of employees.
Equipment Deduction Changes
The amount you can take as a deduction for equipment purchases has increased drastically with the new tax bill. The maximum deduction is now $1 million, up from $510,000. The phaseout threshold amount has also increased to $2.5 million. Businesses will also receive a bonus depreciation of 100 percent instead of 50 percent for new equipment. This depreciation bonus is available for equipment purchased and used after September 27, 2017. After 2022, the depreciation level will gradually lower over several years.
Net Operating Loss
If you’ve been taking net operating loss deductions for your business, that loss will now be limited to 80 percent of your taxable income. Prior to the new tax bill, you could carryback net operating losses, but that has been eliminated beginning in 2018. On the other hand, the new law now allows the ability to carry forward net operating losses indefinitely.
Meals and Entertainment Expenses
If you typically offer extra perks to employees or routinely ask employees to travel for work, this is a change you need to know about. The deductions for entertainment, amusement, and recreation expenses, club membership dues, and costs for facilities related to these expenses have all been eliminated with the implementation of the tax law.
You are still able to deduct 50 percent of meal expenses you may incur while operating your business and meals paid for during employee travel. That 50 percent deduction is also extended to employer-operated eating facilities through 2025. No deductions will be allowed for qualified transportation fringe benefits and expenses you pay to provide commuting transportation for your employees.
We’ve only listed some of the ways the tax reform bill may impact your business. It’s absolutely crucial that you speak with a tax advisor who can help you sort through the changes and how you and your business will be impacted.
For help with your payroll taxes and managing your business, contact Charlotte Payroll today at 704-887-5511. We make your job easier and give you peace of mind that your business is compliant and you have one less thing to worry about.