2020 Tax season is here!
Ignorance is never bliss. Please take some time to review your tax situation and position yourself to take advantage of the changes for 2019 Income Tax.
New Income Tax Rates
Since the majority of small businesses are owned by individuals and not corporations, the below Individual Income Tax Rate changes also apply to small businesses. Sole proprietors, Partnerships and Limited Liability Companies, all pass-through entities that pay business taxes on their owner’s personal tax return should be aware of these changes.
2019 Individual Income Tax Rate Changes: the levels are the same but the tax rates have decreased.
2019 Corporate Income Tax Rate has also deceased. It is now a flat 21% for all Corporations.
New Tax Law Changes
Taking advantage of these new tax law changes can help decrease your taxable income.
Qualified Business Income Deduction
This new QBI deduction allows small businesses to take an additional 20% deduction from their qualified business income. Meaning Sole Proprietors, Partners, Limited Liability Companies, any pass-through entity can take this deduction in addition to the usual allowable business deductions. Corporations cannot take the QBI deduction.
There are limitations based on net income and exclusions per type of income. (limit $157,500 single filers and $315,000 married)
Capital Asset Investments Expanded
Purchasing equipment and other qualified Capital Assets has expanded Section 179 deductions. You can now deduct the entire cost of a new and used Capital Asset in the current tax year. Eligible: machinery, equipment, vehicles, office furniture, computer systems and software.
Also increased Bonus depreciation to 100% for qualified property acquired placed in service after September 2017.
Other important changes
The standard Mileage deduction is now
$0.58 cents per mile
$0.20 cents per mile for medical or moving purposes
$0.14 cents per mile for charitable service driving
Reminder: it might be a better option for you to deduct actual expenses rather than the standard mileage rate.
Entertainment Expenses: eliminated deduction
You can no longer deduct business entertainment expenses. No more deducting for entertaining clients.
Meals Expenses: limited deduction
50% meals for employees at your business location
50% meals while employee is traveling
50% meals for business clients
*if the meal is for an “essential part of your business”, like an occasional event, annual employee picnic or provided occasionally for meetings or for working overtime, those can be deducted at 100%*
Reimbursing Employees for commuting: eliminated deduction
You can no longer deduct for reimbursing employees for the cost of commuting to work. Employers will no longer be allowed to deduct the cost of reimbursing employees for mass transit or parking.
Medical Expense Threshold Increased
The threshold for Medical expense increased to 10% from 7.5%
401K Contribution Limits Increased
401K Contribution limits increased to $19,000 and $6,000 for taxpayers over age 50 making catch-up contributions.
IRA Contribution Limits Increased
IRA contribution limits increased to $6,000 with a $1,000 catch-up amount for taxpayers over age 50.
Tax Credits Available
Work Opportunity Tax Credit (WOTC) – qualified hires must be made before year-end
Small Business Health Care Tax Credit
New Markets Tax Credit (NMTC)
Research and Development Credit (R&D)
Smaller businesses may qualify for a credit by starting new Retirement Plans
These tax changes are complex and as always you should consult with your CPA or Tax Preparer prior to making any tax decisions.