Important 2018 Tax Law Changes You Need to Know About Now
Now that tax season has passed, we’ve been getting up to speed on the new tax law and what it might all mean. The IRS is also starting to stir and put together some guidance about all the many vague areas of law, which is helping to clarify things somewhat. Some changes are obvious and major, while others are minor and remain uncertain. However, below are a few of the most significant tax law changes we feel you should know about and make adjustments for, if you haven't already:
- Obamacare penalties: Lots of people heard these were repealed, but they were repealed only for years after 2018. This means individuals not covered by qualifying health insurance in 2018 (right now) will have to pay a penalty when they file in 2019 (next year). There will probably be no temporary relief from the penalties on 2018 returns similar to what was granted by President Trump for 2016 returns.
- Deductibility of Employee Business Expenses: In a word… NONE. If you are an employee, none of your union dues, car expenses, home office expenses, meals or anything else will be deductible. These deductions have been replaced with a much larger standard deduction. If these sorts of expenses have historically been substantial, you may want to consider forming your own business, or getting your employer to cover some or all of these expenses. If you are an owner or part-owner of a business, all of these expenses become deductible – it's only employees who lose out.
- Deductibility of Miscellaneous Itemized Deductions: These have also gone away, to be replaced by a much larger standard deduction. Miscellaneous itemized deductions are things like tax prep fees, investment advisor fees, safe deposit box fees, other investment-related expenses, employment-related expenses, personal legal fees for the protection of income, etc. None of these are deductible any more, unless they're related to a business or business activity.
- Bonus Depreciation: As of September 27, 2017, any new or used equipment you bought for business (aside from vehicles, which are limited) qualified for 100% immediate depreciation. So – you can take an immediate deduction for any asset you buy with a life of less than 15 years.
- Qualifying for the new 20% Deduction: There's a new deduction from taxable income for certain types and amounts of business income – 20% of Qualifying Business Income. The mechanics and details of how this works are far too complex to get into here, but you do want to qualify for this if you can. Generally, business profits count, subject to some income limits and restrictions on certain professions. However, things that don't count are:
- Wages paid to you by your S corporation
- Guaranteed payments paid to you by a partnership
- Investment income of any business.
- Changes to deductibility for entertainment expenses: It's simple – they’re not deductible at all, in any way. Entertainment expenses includes things like golf outings, tickets to the game, marine excursions, etc. This was effective January 1st.
- Changes in deductibility for meal or food expenses: Some meals which used to be partially deductible, still are. Others are not, and some are less deductible than they used to be. Here's a table of the changes:
|Expense||Old Law||New Law|
|Client meals (in conjunction with entertainment)||50% deductible||Not deductible|
|Client meals (directly related to a business meeting)||50% deductible||50% deductible|
|Meals while on business travel||50% deductible||50% deductible|
|Meals provided for the convenience of the employer, such as:
||100% deductible||50% deductible|
|Food provided to non-employees for business purposes (e.g., seminar refreshments or meals)||100% deductible||100% deductible|
|Holiday parties, picnics and other employee appreciation events||100% deductible||100% deductible|
For those doing their own small business bookkeeping, we strongly suggest you make separate categories for meals and entertainment. In fact, if it applies to you, you might want to make one category for entertainment, one for meals or food which is 100% deductible, and another for meals or food which are 50% deductible. Meals which are non-deductible can be lumped in with entertainment. You might also want to go back and re-categorize any expenses posted to the meals and entertainment category so you won't have to do it all at the end of the year.
These are just a few of the new tax law changes we felt would be most important for you to know about right now. There are many other changes which could effect the way you do business, tax planning and such which we can address with you individually.
If you have any questions about these changes or would like to schedule an appointment with your tax preparer to discuss your specific situation, please CONTACT US. We're here to help!