There are plenty of ways that new tax laws in Washington will affect your bottom line, but not until you file your 2018 taxes. You can still take advantage of 2017 tax breaks now and then start planning for changes next year. Depending on how you and your business will be affected, it might be time to adjust your long-term plan or entity structure and make a few changes of your own.
Here’s what you need to know about the Tax Cuts and Jobs Act:
- Most of the tax changes went into effect on Jan. 1, 2018. They will not affect your 2017 tax return, which is due in April.
- In 2018, the size of the standard deduction will almost double. For individuals it will go up from $6,500 to $12,000 and from $13,000 to $24,000 for married couples who file jointly.
- There is good news for those planning to start their own business. The corporate tax rate is being slashed from 35 percent to 21 percent. S corporations, partnerships, LLCs and sole proprietors can also deduct 20 percent of their qualifying income before taxes.
- Service-type businesses, from doctors to lawyers, are not privy to the 20 percent deduction so as not to create a loophole. Some businesses may want to consider changing their current structure in order to take advantage of deductions in the future.
- Businesses that invest heavily in equipment can now immediately expense 100 percent of the cost. Also, the Section 179 cap for new and used equipment and off-the-shelf software has increased from $500,000 to $1 million.
- Deductions for business-related entertainment have been eliminated, and meals provided on an employer’s premises are now only 50 percent deductible (and will be nondeductible after 2025).
- A big elimination is the manufacturers’ or Section 199 deduction. This was previously a significant tax break for businesses in domestic manufacturing.
- Net operating losses can be carried forward indefinitely but no longer back two years. This deduction is also limited to 80 percent of taxable income.
- This is the first major tax overhaul in 30 years, and business owners are expected to reinvest back into their businesses, thus spurring economic growth.
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