At first glance the Tax Cuts and Jobs Act of 2017 is only beneficial for C corporations, but there are a few changes that may affect your Atlanta metro small business. Below are a few key changes to consider, but for full compliance your NTRC accountant will need to review your finances in detail.
QBI Deduction
The Qualified Business Deduction applies to partnerships, S corporations, and sole proprietorships. However, it is also applied for income generated from real estate investment trusts, publicly-traded partnerships, and agricultural co-ops.
The general deduction is 20% but varies depending on whether you are below or above the tax threshold. If your taxable income after adjustments and deductions is less than $157,000 for singles and $315,000 for married couples and joint filing then there is no limitation on the QBI deduction. If your income is over this threshold there are some restrictions:
- 50% of the W2 wages timely paid on behalf of that activity, or
- 25% of the W2 wages plus 2.5% of the initial cost, immediately after acquisition, of all tangible property placed in service on behalf of that activity. (Tangible property includes real estate, equipment and machinery, vehicles, or robots that replace your employees.) You can count the initial cost property towards this amount for 10 years.
How QBI Affects Service-Related Business Owners
If you provide a service instead of a product then eligibility thresholds for the QBI deduction phase out between $315,000 and $415,000. You are considered a services-related business if you, or one or more of your employees offers a service as your principal asset. This includes physicians, lawyers, accountants, artists of all genres, athletes, consultants, and more.
QBI Carryover
You may not carry over any unused deductions to the following year, but if your QBI for the year is negative you can carry forward your loss to the next tax year.
Depreciation Planning
An exciting change that Atlanta Metro business owners should plan for is the adjustment to depreciation. In the past durable expenses needed to be depreciated, or deducted, over multiple tax years. However, the cost of qualified improvement property purchased between September 27, 2017 and December 31, 2022 can be expensed at 100%. Work with your NTRC accountant to map out these purchases for maximum tax benefit. This bonus depreciation will phase-down between 2023 and 2026 so tax planning is a must.
These are just a few of the ways in which the Tax Cuts and Jobs Act of 2017 may affect your small business. However, there are some significant changes to deductions that you must be mindful of to ensure you are tracking and planning your spending accordingly. The end of tax year is almost here making now the perfect time to reach out to your NTRC accountant to start preparing your end of year documents. While taxes aren’t due until April 15, 2019 this will provide ample time to gather all required tax information. Reach out today!