The Tax Cuts and Jobs Act may have made the biggest changes to the tax code in the last several decades. While the law is generally known for its reduction of the corporate tax rate, it also provides many small business tax breaks that are worth exploring during tax preparation.
5 Small Business Tax Breaks to Capitalize On
1) 20% Qualified Business Income Deduction
Starting this year, there is a new 20 percent qualified business income deduction. It benefits several different types of companies, including:
- Sole proprietors
- S corporations
This new small business tax break can be used to deduct 20 percent of the net income of a business. However, to receive the full deduction, your taxable income must be less than $157,500 for individuals or $315,000 joint filers.
2) 100% Bonus Depreciation
The recent tax overhaul increased the bonus depreciation deduction from 50 to 100 percent until 2023. This provision allows full expensing of certain business assets, whose costs are generally spread out over a longer period of time, in the year that they were purchased.
2 Key Tax Rules
- Bonus depreciation doesn’t have to include new purchases but the items must not have been ones that were used before
- The purchases must have been made after September 17, 2017
Some types of personal property, such as cars, computers and office furniture, which are used for business purposes, may qualify for this type of small business tax break.
3) Family and Medical Leave Employer Credit
With paid family and medical leave becoming more common in America today, the Federal government is beginning to catch up with the trend. This year, small business owners can take advantage of a general business credit, which is applied to the amount of wages paid to employees on family and medical leave during a taxable year.
It is generally applicable to wages that were paid after December 31, 2017, but before January 1, 2020.
4) Business Expenses
A notable change in the Tax Cuts and Jobs Act is an elimination of the deduction for any expenses related to entertainment, amusement or recreation activities. However, business meals may still be deducted at a rate of 50 percent if the owner or an employee is present and the food and beverages are neither lavish nor extravagant.
5) Retroactive Refunds
Although the new tax law mostly changes IRS rules going forward, it still gives taxpayers the opportunity to receive a retroactive refund. All taxpayers have a window to revisit the last three years of tax returns to find any missed savings opportunities.
With tax season less than a month away, it’s time to develop an actionable plan. If you have any questions about small business tax return preparation, contact a local tax professional.