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If you’ve watched or seen the news lately, you know there’s been a fairly recent change to the tax code, the Tax Cuts and Jobs Act. The passage of this law arrived with a $1.5 trillion makeover of our current system of taxes.
If you’re a business owner, there are several changes to the system that may affect your business and bottom line. More importantly, there are certain changes that may result in you owing more or expecting a bigger tax refund.
Here are the most important ways the latest set of tax reforms will affect your business:
Estimated tax payments
The tax changes with Trump’s tax reform plan mean that tax rates, tax brackets, and other tax-related changes have occurred. In turn, this can affect the amount of taxes you owe at the end of the year. The IRS encourages all taxpayers to do a paycheck checkup to avoid owing a large sum at year’s end.
As a business owner, it’s incredibly important to make sure you work with or hire an accounting professional or CPA in order to ensure that your paperwork is compliant with the new laws.
It’s also helpful to have an idea of how much money you will owe at the end of the year so you can stay on Uncle Sam’s good side.
New or revised deductions
The changes to the deduction’s businesses can claim this year are vast.
For example, taxpayers can no longer deduct payments made in harassment or sexual abuse cases. Taxpayers are also prohibited from deducting particular fines and penalties for legal violations. You can find a full list of the new rules regarding business deductions here.
Changes to fringe benefit deductions
Fringe benefit deductions will see the following changes below:
• Achievement awards: There are special rules that allow an employee to omit achievement awards from wages if the awards are considered tangible, personal property.
• Moving expenses: Employers are required to include moving expense reimbursements in employees’ earnings under the new tax law. Now, employees are not allowed to omit qualified moving expense reimbursement from an employee’s income.
• Bike commuting reimbursement: Employers can deduct certain bicycle commuting reimbursements as a business expense from the year 2018 to 2025. These reimbursements, however, must be included in an employee’s official income.
• Transportation fringe benefits: The new tax law prohibits the deduction of expenses for certain transportation fringe benefits to employees for commuting unless it’s required for safety.
Changes to depreciation and expenses
Here is a summary of the new regulations surrounding depreciation and expensing:
• Businesses have the chance to expense more under the new tax code
• Temporary 100% expensing for some kinds of business assets
• Changes to depreciation limitations on luxury cars and personal-use property
• Use of alternative depreciation system for those in the farming business
New and revised tax credits
There are two main changes to the tax credits that affect businesses this year.
First, there’s the new employer credit for paid family and medical leave. It’s a general business credit that’s a percentage of the wages paid to a qualified worker while he or she is on paid family or medical leave.
The other major change is the Rehabilitation Tax Credit, which keeps the current 20 percent credit for expenses related to fixing a certified historic structure but eliminates the 10% tax credit for pre-1936 buildings.
The new tax regulations allow small businesses who make less than $25 million to use the cash method of accounting. There are also changes related to like-kind exchanges and S corporation to C corporation, you can read more about those new changes here and here through the IRS website.
Wrongful IRS levy
With the bevy of tax code changes that have been introduced, individuals and businesses will be glad to know that they have more time to file an administrative claim or to bring a civil action for a levy or seizure that occurred in error.
The new law extends the time limit to pursue a wrongful levy lawsuit from 9 months to 2 years.
The US tax code can be a tricky maze to navigate but with the right knowledge and a well-versed tax professional in your corner, you can make the most of the new changes, add them to your business plan, and keep your focus on growing your company and making profits!