More than two years have passed since President Donald Trump signed into law the Tax Cuts and Jobs Act of 2017, also known as Tax Reform. In the minds of many Bergen County NJ business owners, that December 22, 2017, event is not at the forefront of operating their businesses.
However, some of the changes the law enacted became effective for the 2019 tax year, meaning you might want to review your bookkeeping and discuss the matter with a Bergen County NJ licensed business tax advisor.
As you prepare your 2019 tax return, we’ve organized and explained in simple terms this year’s business tax changes. There are seven key areas of your business taxes you should review in light of these changes.
- Pass-through tax deduction – Businesses that function as an S-corporation, limited liability company, partnership, or sole proprietorship with pass-through funds are now eligible for a 20% deduction if they make $157,500 for individuals or $315,000 for those who file jointly. Before this year, this deduction was based on your income tax bracket, which might have left you paying more in taxes for your pass-through business.
Small business owners still need to watch their income because once you exceed those thresholds, very few individuals will be able to take advantage of this tax break.
- Excess business loss – Disallowed business losses are now treated as a net operating loss. You’ll carry that over into the next tax year using Form 461. , is applicable for business owners that use Schedules E, F, or C.
- Net operating loss – In most situations, taxpayers are no longer able to carryback net operating loss. Those losses must be carried forward for any tax reporting year after 2017. There are some exceptions for farming losses. Additionally, losses that arose in the tax year 2018 or after will be limited to a taxable income deduction of 80 percent.
- Meals and entertainment – Under the new law, there are no deductions for entertainment, amusement, or recreational expenses you incur for your business. However, meals, where the taxpayer or one of the taxpayer’s employees is present, can still be deducted at 50 percent of the cost. There is a clause stating that food and beverage must not be lavish. A meal could be considered a business expense if it is with current or prospective customers, consultants or other business contacts. The bills, receipts or invoices for business meals must be separate from entertainment receipts to be eligible.
- Tax credit programs – Revenue Procedure 2019-12 provides safe harbors for pass-through businesses or corporations that have expenses related to state or local tax credit programs. Payments made, these programs are considered ordinary and necessary expenses.
Fringe benefit deductions
Employers sometimes offer fringe benefits to their staff to show how much they appreciate their staff and improve employee retention. However, starting in 2019, fringe benefits, such as parking passes or public transit fees, will not be tax-deductible at all.
Bicycle commuting reimbursements are now covered as a business expense, though from 2018 through 2025. You must include those reimbursements in your wages to your employees. Likewise, the new tax law also states that you must include moving expenses in employee wages when you reimburse your employees for their moving expenses. The one exception to this rule is for active service members.
Offering your employees food is also not as tax-deductible as it used to. You’ll be able to write off your on-site cafeteria expenses at 50 percent, and your employees will still not have to pay taxes for that perk.
Finally, the new law also clarifies tangible personal property as achievement awards. Some tangible personal property awards can now be excluded from employee wages when given as an award.
Depreciation and business expensing
Calculating depreciation on real estate and business equipment is complex and confusing for many businesses. And with laws changing constantly, it made it difficult to know when to add in depreciation and when not to. The new Tax Reform laws make this aspect of your taxes much clearer.
In 2017, you can use a 50 percent upfront depreciation and then 100 percent for subsequent years. Bonus depreciation will be further reduced in items that you put in service starting in 2022.
Here is the definition of real estate and new or used equipment depreciation that the Tax Reform law covers: “generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances, and furniture generally qualify.” Review FS-2018-9 for more information.
Employers can now receive a tax credit for wages they pay to qualified employees on family and medical leave. Eligible wages are for up to 12 weeks of paid leave per employee in a taxable year. This credit is available starting Jan. 1, 2018, through Dec. 31, 2019. You’ll find more definitions and explanations in Notice 2018-71 to better understand how this can affect the taxable income of your business.
Another tax credit of note for 2019 is the Rehabilitation Tax Credit. This removes the 10 percent tax credit on buildings placed in service before 1936. Ask your Bergen County NJ business tax advisor about the transition rule that can provide relief for these older buildings still in service.
There is still a 20 percent tax credit for historic structures, though you must prorate the 20 percent over five years from when you place the landmark structure into service.
Under Tax Reform, more small businesses will be able to use the cash method of accounting. The benefit of this is that you can be exempt from taxes on inventory, long-term contracts, and cost capitalization. The new law allows the cash method of accounting for businesses with gross receipts of $25 million or less when looking back at the past three years’ income.
Additionally, when S corporations move to C corporations, they must use a six-year adjustment period to move from a cash accounting method to an overall accrual method.
Businesses that operate internationally face more changes than those who only do domestic business. Because the changes are so far-reaching and complex, we recommend discussing these with your a Bergen County NJ licensed business tax advisor. Additionally, you can read more about international business and taxes through the IRS guidance.
Wrongful IRS Levy
Previously, businesses only had nine months to file an administrative claim or bring about a wrongful levy suit. Tax Reform increases that timeframe from nine months to two years. This change is only valid for levies made after Dec. 22, 2017. All other levies before this date will still have the nine months for filing complaints or suits. Read more in the news release the IRS released related to this change issued on May 25, 2018.
Choosing a Bergen County NJ business tax advisor
The taxes that you pay directly affect your bottom line for your Bergen County, NJ business in 2019. Allow Tsamutalis & Company, LLC, to be your trusted advisor for your Bergen County business tax filing needs. With nearly 30 years of experience in business taxes, we’ll ensure your taxes are accurate and you take full advantage of the credits available to you. Contact us to start your 2019 tax filing.
If you need help with your taxes, please contact or call us at (201) 692-1600.