How tax law will affect you and your business

January 4, 2018

How tax law will affect you and your business: 

About 80% of Americans will see tax savings due to the new tax law. The range of tax savings can be somewhere from $1,000 to $8,000. The tax rate for individual income tax was reduced, on average, by 2-3%. The double standard deduction and the increase in child tax savings will definitely result in a tax decrease. 

S-Corporations only got better and more tax-advantageous for tax and audit purposes after the new tax reform. Please call our office to see if you qualify for an S-corporation (1-800-5040-CPA).

 Let’s talk about Individuals: 

Standard Deductions are up to $12,000 for single and $24,000 for married filing jointly, and $18,000 for head of household with a qualifying child. 

Tax Rates slightly decreased, resulting in a little bit higher paycheck for people who receive W-2 income.

 Penalties for not having health insurance will be in effect in 2018 as the last year, and will be repealed in 2019. Based on our experience working with small business owners, we learned that having a group health insurance plan results in small health care cost savings and better plan options. Besides, a small business group plan is easier to establish as there is no required deadline for enrollment. 

As a result of a significant increase in the Standard deduction, most taxpayers will switch from an itemized to a standard deduction. If your itemized tax deductions will still be higher than $12,000 for single and $24,000 for married filing jointly, here is a summary of changes on your Schedule A: 

Your income / sales / real estate and personal property taxes are limited to $10,000. 

 
Acquisition debt for a primary and secondary residence is limited to $750,000 in interest deduction. It looks like you will be able to deduct home equity line of credit if you can prove that the money was used to make significant changes to your property. However, the IRS has not interpreted these rules for us yet. 
Medical expense deductions are back to being limited to 7.5% of your AGI (Adjusted Gross Income). 

 
Charitable contribution deductions are the same. 
As it applies to Adjusted Gross Income, moving expenses are not deductible expenses any longer.

 
Now, let’s talk about small business owners and how tax law will affect us. 

Small Business Owners:

 

If you have a pass-through entity and a service business, you will be able to deduct 20% of your net income from your K-1 as non-taxable income, provided your taxable income does not exceed $157,000 for single and $315,000 for married filing jointly. In my opinion, this tax deduction alone can save you $3,000 to $5,000 in taxes! 

For a regular business with employees, the same tax deduction will also be limited to 50% of your employee’s payroll. This means that if your net income from S-corporation (reported on your K-1 form) is $120,000 and employee payroll is $70,000, your tax deduction would be the less of $120,000 x 20% = 24,000, not to exceed $35,000. 

Auto Tax Deduction is going up as the standard mileage rate is now $0.545, up from $0.535 in 2017. Sec 179 deduction is still in effect. 

Entertainment expenses are no longer allowed for small businesses. Neither are 100% tax deductible meals for office employees. 

This is just a short overview of the new tax law. If you want to know how new tax law changes will apply to you personally, please do not hesitate to contact our office. 

We wish you a very prosperous and successful 2018!

 

Colorado Business CPA, LLC

   

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