Year-End Tax Planning in the TCJA Era
Year-End Tax Planning in the TCJA Era
The sweeping piece of legislation known as the Tax Cuts and Jobs Act (TCJA) provided a steep learning curve last year, and while it still remains complicated, having some experience under our belts has us better prepared to tackle taxes in the TCJA era. Below is a general overview of things to keep in mind as you complete your business’s year-end tax planning.
Travel Expenses
The IRS recently cleared up some confusion in this area, stating that food and beverage costs are deductible by 50% in certain circumstances, but those costs must be stated separately from entertainment on invoices or receipts.
Business Repairs
Because the deductions to minor repairs can offset taxable business income, think about completing these repairs by the end of the year. Be aware, though, that the costs of improvements to business property must be written off over time. Unsure whether your particular project falls under minor repair or property improvement? The IRS recently released regulations that define the distinctions between the two.
Depreciation-related Deductions
The TCJA boosted the deduction limit of fixed assets to $1.02 million with a phase-out threshold of $2.55 million for 2019. It also increased bonus depreciation to 100% for property placed in service after September 27, 2017 and before January 1, 2023. What does this mean for you? If your business obtains a fixed asset or property that’s placed in service within the current year, you can typically write off the cost in 2019. A fixed asset, whether bought new or used, is one that you don’t plan on selling anytime soon and will be used to garner long-term income.
Estimated Tax Payments
A corporation that foresees a small net operating loss for 2019 but a substantial net income in 2020 might want to accelerate just enough of its 2020 income to establish a small amount of net income for 2019. Likewise, deferring just enough of the corporation’s 2019 deductions could achieve the same result. This move would allow the corporation to base its 2020 estimated tax installments on the comparably small amount of income evident on its 2019 return as opposed to its much larger 2020 taxable income.
QBI
Since the TCJA went into effect, business owners of pass-through entities such as LLCs, partnerships, and S corporations are permitted to deduct up to 20% of their qualified business income (QBI) through tax year 2025. The QBI deduction is reduced for some taxpayers based on the amount of their income. If this is reflective of your situation, you can either accelerate or defer income at the end of the year, depending on the figures. If you want to reduce your taxable income so it falls under the $157,500 threshold ($315,000 for married filing jointly), you can make contributions to retirement plans or health savings accounts, or even through charitable contributions. For business owners whose field is in a specified service, including most personal-service providers, you’re typically not eligible for the deduction if your taxable income is above a certain threshold.
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