The Tax Cuts and Jobs Act changed the corporate tax rate for business starting in 2019. The new flat rate for C-corporations is now 21% representing large savings. For smaller businesses that aren’t C-corporations, there are still differences in the new tax code that can save you money. Here are five 2019 tax breaks and benefits you should know about.
S-Corporations and the TCJA
Some small businesses are S-corporations. They can be a sole proprietorship, a partnership, an LLC or even a hybrid. While the TCJA lowered the corporate tax rate for C-corporations, small businesses were not forgotten.
S-corporations and other small businesses allow owners to “pass-through” profits as personal income, rather than as a corporate account, saving them from being taxed twice. A new credit was included in the tax act for small businesses that don’t file a corporate tax return.
Qualified Business Income Deduction
A new 20% qualified business income deduction was enacted specifically for small business. Companies with a taxable income of less than $157,500 for a single person, or $315,000 if married, are eligible. For all income within these limits, 20% is non-taxable. For lawyers, doctors and other specified professionals the deduction doesn’t kick in until they earn $207,500 if single or $415,000 if married and filing jointly. Once you go above the caps, there are limitations that apply. But generally, for small businesses earning $100,000 in 2018, for example, the 20% deduction would mean only paying taxes on $80,000 in earnings. More detailed information regarding these 2019 tax breaks is available from the IRS website.
Depreciation is Available Again
If you’ve considered capital expenditures, the time may be right to buy. The TCJA allows for 100% bonus depreciation on the entire cost of qualifying assets purchased and put into service after September 27, 2017. This will last until about 2022 and then phase out at 20% for every year after. Depreciation is available for new and used assets with a 20 year or less expected life span.
Entertainment Out: Some Meals Still In
The new law eliminates the write-off for business related entertainment costs, but businesses are still allowed to write off some expenses. Holiday parties are still fully deductible at 100% of the cost to the employer. Meals employees purchase while on business travel are still deductible at 50% and, until 2025, employer-operated eating facilities, like cafeterias are deductible at 50%.
Entertainment costs are no longer deductible. While there’s no more deduction to take a client to the big game, there are mixed interpretations about whether a meal afterward, where business is discussed, is deductible at 50%. Consult your accounting professional or wait for more guidelines from the IRS before you pick up the tab.
Family and Medical Leave Tax Credit
In order to encourage small business to help employees with family and medical leave needs, companies that offer paid family or medical leave to their employees are allowed a new, temporary credit for 2018 and 2019. The credit is approximately 12.5% of the wages paid to the employee during the leave, but if you pay employees more than half their normal salary, the credit increases. To qualify, you must have established and communicated to employees your paid leave policy (or updated your existing policy) before December 31, 2018. Full-time workers must be granted at least two weeks of paid family and medical leave each year (prorated for part-timers), for the business to be eligible for the credit. The credit doesn’t apply for staff members who earned more than $72,000 in 2017, and other restrictions apply.
The Cash Method of Accounting
If you’re hunting for 2019 tax breaks, remember this: if your business’ gross receipts annually were $25 million or less in the past three years, businesses may use the cash method of accounting. The allows eligible small business to use the cash method and exempts them from specific accounting rules for inventories, cost capitalization and long-term contracts.
The Tax Cuts and Jobs Act has simplified the tax codes for corporations across many levels and will provide tax savings and relief for business. While most of the code is clear, the IRS continues to make adjustments: it’s always a best practice to consult your tax professional to assure you’re filing correctly.