With just a few months left in the year, the IRS is highlighting important information for small businesses and self-employed individuals to help them understand and meet their tax obligations.
Here are several changes that could affect the bottom line of many small businesses:
Qualified Business Income Deduction
Many owners of sole proprietorships, partnerships, trusts and S corporations may deduct 20% of their qualified business income. The new deduction — referred to as the Section 199A deduction or the qualified business income deduction — is available for tax years beginning after December 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file next year.
Temporary 100% Expensing for Certain Business Assets
Businesses are now able to write off most depreciable business assets in the year the business places them in service. The 100% depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances, and furniture generally qualify.
- Entertainment and meals: The new law eliminates the deduction for expenses related to entertainment, amusement or recreation. However, taxpayers can continue to deduct 50% of the cost of business meals if the taxpayer or an employee of the taxpayer is present and other conditions are met. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
- Qualified transportation: The new law disallows deductions for expenses associated with transportation fringe benefits or expenses incurred providing transportation for commuting. There is an exception when the transportation expenses are necessary for employee safety.
- Bicycle commuting reimbursements: Employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. The new tax law also suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.
- Qualified moving expenses reimbursements: Reimbursements an employer pays to an employee in 2018 for qualified moving expenses are subject to federal income tax. Reimbursements incurred in a prior year are not subject to federal income or employment taxes; nor are payments from an employer to a moving company in 2018 for qualified moving services provided to an employee prior to 2018.
- Employee achievement award: Special rules allow an employee to exclude certain achievement awards from their wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies that tangible personal property does not include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities and other similar items.
Individuals, including sole proprietors, partners, and S corporation shareholders, may need to pay quarterly installments of estimated tax unless they owe less than $1,000 when they file their tax returns or they had no tax liability in the prior year (subject to certain conditions). Some affected taxpayers may include those who have dividend or capital gain income, owe alternative minimum tax or have other special situations.
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