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Avoid New Tax Law Complacency

By Tom Irmen

The Tax Cuts and Job Acts of 2017 gripped headlines right up to its enactment, but much less is heard today of its far reaching impacts on individual and business taxpayers. Many of us are understandably focused on reporting our 2017 tax liabilities and the day-to-day management of our businesses. One word of caution, however: Don’t allow complacency to creep into your tax planning for 2018 and beyond. It could end up costing you plenty. In fact, I would encourage every small business owner to schedule time with their accountant to discuss all of the applicable provisions of this new tax law that will likely impact them.

I asked Yvonne Marsh, Certified Financial Planner™ and CPA of Marsh Wealth Management, to elaborate on several of the key provisions of the new tax. Here is her response:

The new tax laws generally benefit both individuals and small business owners in the form of higher standard deductions and lower marginal tax rates. The biggest change for small business owners is the introduction of the Qualified Business Income (“QBI”) deduction. QBI is generally the earnings from a trade or business. If the business is a pass-through entity (i.e. not a C corporation) and the total taxable income is less than $207,500 for an individual or $415,000 for a married couple, then the owners can take a deduction for 20% of their qualified business income. If those income limits are exceeded, there are additional rules relating to the type of business you own and the deduction begins to phase-out. Notably, this QBI deduction does not reduce your self-employment tax.

Other changes for small business owners include the elimination of the 50% entertainment expense deduction (the 50% meals deduction remains), increased deprecation for business cars, an employer tax credit for paid leave provided under the Family and Medical Leave Act, increased deductions for bonus depreciation, and the limit to expense purchases under Section 179 was raised from $520,000 to $1 million annually.

Entering into this new tax year without a thorough understanding of the potential impact of the new tax law on our businesses could cost you thousands of dollars and missed opportunities that perhaps your competition may take full advantage of. If you’ve already prepared your taxes for 2017, schedule a follow-up appointment with your accountant. If you haven’t already completed your 2017 taxes, schedule an appointment with your accountant to discuss the new tax law. If your accountant doesn’t understand the new tax law changes, schedule an appointment with your new accountant.

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