The Tax Cuts and Jobs Act (TCJA) introduces the following items that can impact the small business owner’s return:
- Increased Standard Deduction
- New tax brackets
The standard deduction for all taxpayers has increased.
- The larger standard deduction will allow the small business owner to spend less time itemizing their individual deductions and more time running their business.
The tax rates in several brackets has decreased by an average of 2%
- The lower tax brackets will result in a larger refund that the small business owner can reinvest into their business.
The introduction of the Qualified Business Income deduction allows certain taxpayers to deduct 20% of the business income on their individual tax return. The QBI qualifications are:
- Must be a pass-through entity (sole proprietorship, LLC or S-Corporation)
- Maximum of $160,700 (single) or $321,400 (Married filing joint return) of Total Taxable Income
- Total Taxable Income maximum of $210,700 (single) or $421,400 (Married filing joint return) for Special Service Business (a business where the reputation or skill of one or more of the employees is the principal asset)
Depreciation benefits have been increased dramatically.
- Bonus Depreciation allows the taxpayer to recover the cost of a new asset fully in the year it was placed in service. In prior years, you could only deduct 50% of the cost in the first year.
- Section 179 limits have been increased from $500,000 to $1,000,000
- Property qualifying for Section 179 has been expanded to include fire protection, alarm systems and security systems
- Increase in maximum allowable depreciation for passenger vehicles
*Please be aware that these limitation amounts are for 2018 specifically*