Now that small businesses and their owners have filed their 2017 income tax returns (or are on extension), it’s a good time to review some of the provisions of the Tax Cuts and Jobs Act (TCJA) that may significantly impact their taxes for 2018 and beyond. Generally, the changes apply to tax years beginning after December 31, 2017, and are permanent, unless otherwise noted.
Corporate taxation changes include: replacement of graduated corporate rates ranging from 15% to 35% with a flat corporate rate of 21%. Replacement of the flat personal service corporation (PSC) rate of 35% with a flat rate of 21%. Repeal of the 20% corporate alternative minimum tax (AMT).
Pass-through taxation changes include: drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%, through 2025. New 20% qualified business income deduction for owners, through 2025.
New or expanded tax breaks included in TCJA: doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets, effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023. Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phase-out threshold to $2.5 million (these amounts will be indexed for inflation after 2018). New tax credit for employer-paid family and medical leave, through 2019.
Reduced or eliminated tax breaks: new disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply). New limits on net operating loss (NOL) deductions. Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction, effective for tax years beginning after December 31, 2017, for non-corporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers. New rule limiting like-kind exchanges to real property that is not held primarily for sale (generally no more like-kind exchanges for personal property). New limitations on excessive employee compensation. New limitations on deductions for certain employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation.
Don’t wait to start 2018 tax planning! This is only a sampling of some of the most significant TCJA changes that will affect small businesses and their owners beginning this year, and additional rules and limits apply. The combined impact of these changes should inform which tax strategies you and your business implement in 2018. The sooner you begin the tax planning process, the more tax-saving opportunities will be open to you. So don’t wait to start; contact us today. © 2018
What 2017 tax records can you toss once you’ve filed your 2017 return? The answer is simple: none. You need to hold on to all of your 2017 tax records for now. However it’s the perfect time to go through old tax records and see what you can discard. The 3-year and 6-year rules apply. At a minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you potentially can get rid of most records related to tax returns for 2014 and earlier years. (If you filed an extension for your 2014 return, hold on to your records at least until the three-year anniversary of when you filed your extended return.) However, the statute of limitations extends to six years for taxpayers who understate their gross income by more than 25%. What constitutes an understatement may go beyond simply not reporting items of income. So a common rule of thumb is to save tax records for six years from filing, just to be safe. What to keep longer? You’ll need to hang on to certain tax-related records beyond the statute of limitations: Keep tax returns themselves forever, so you can prove to the IRS that you actually filed a legitimate return. There’s no statute of limitations for an audit if you didn’t file a return or you filed a fraudulent one. Hold on to W-2 forms until you begin receiving Social Security benefits. Questions might arise regarding your work record or earnings for a particular year, and your W-2 could provide the documentation needed. Retain records related to real estate or investments as long as you own the asset, plus at least three years after you sell it and report the sale on your tax return (or six years if you want to be extra safe). Keep records associated with retirement accounts until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years. We’ve covered retention guidelines for some of the most common tax-related records. If you have questions about other documents, please contact us. © 2018
Here are some of the key tax-related deadlines affecting businesses and other employers during the third quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements. July 31 • Report income tax withholding and FICA taxes for second quarter 2018 (Form 941), and pay any tax due. (See the exception below, under “August 10.”) • File a 2017 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension. August 10 • Report income tax withholding and FICA taxes for second quarter 2018 (Form 941), if you deposited on time and in full all of the associated taxes due. September 17 • If a calendar-year C corporation, pay the third installment of 2018 estimated income taxes. • If a calendar-year S corporation or partnership that filed an automatic six-month extension: • File a 2017 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due. • Make contributions for 2017 to certain employer-sponsored retirement plans. © 2018