The tax landscape is ever-evolving for business owners. As a small business owner, you’re responsible for keeping pace with the changes and how they impact you. These are the key tax changes for 2018 and 2019 that you need to know.
The Qualified Business Income Deduction Was Introduced
As we welcomed 2018, we also welcomed the Qualified Business Income Deduction. Sole proprietorships, landlords, S corporations, and partnerships became eligible for this new deduction from January 1, 2018.
This new deduction is worth 20 percent of “qualified business income” or 50 percent of W-2 wages, whichever is less. Qualified business income is your company’s ordinary, non-investment income. Interest, dividend income, and capital gains from property are not considered qualified business income. Note though that the 50 percent of W-2 wage limitation doesn’t apply if your taxable income is less than $157,500 for single filers, or your household income is less than $315,000 for married filers.
Bonus Depreciation Rose to 100 Percent
Learning that the items you use in your business lose their value significantly when you start using them is depressing. Depreciation helps offset this loss at tax time. In the past, it took decades to get the full value of depreciation back, but Congress has slowly changed that. In 2002, it introduced bonus depreciation to help business owners like you benefit from the tax deduction sooner. Originally, bonus depreciation was set at 30 percent in the first year. In 2018, Congress increased the claimable amount to 100 percent. This rate will remain in 2019, and only start decreasing in 2023.
All assets used for business purposes that are useful for 20 years or less are eligible for bonus depreciation, including cars, machinery, office furniture, and computers. Most computer software is also eligible.
Qualified Improvement Property was originally ineligible for bonus depreciation. However, amendments issued on August 3, 2018, made qualifying improvements to commercial properties made between September 27,
IRS Interest Rates Increased and Could Again
The Internal Revenue Service (IRS) increased its interest rates in line with Federal Reserve interest rate rises on April 1, 2018. These increases took the interest rate for corporate overpayments to 4 percent and corporate underpayments to 7 percent. IRS interest rates often rise when Federal Reserve interest rates do. With three more Federal Reserve interest rates rises expected for 2019, don’t be surprised if the IRS interest rates for businesses climb even higher by the year’s end. Higher tax rates make resolving any IRS business tax debts quickly even more important.
New Credit Will Reimburse Employers for Leave Wages
The new Employer Credit for Paid Family and Medical Leave makes treating your employees right even more attractive. You’re eligible for the credit if you established or amended a qualifying paid family leave program by December 31, 2018. The new credit reimburses you for a percentage of the wages you paid employees on family or medical leave.
You are responsible for understanding these changes and how they’ll impact your business. If anything is unclear, ask your tax advisor or accountant to clarify the new rules for you.
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- Tax Time: Check If You Qualify for Home Office Tax Deductions