"With great change comes great opportunity." - Mel Sams
Businesses in the US will have some major opportunities in the upcoming years. Some of the changes in the new tax law include Expanded Cost Recovery Provisions, Section 179 Depreciation & Bonus Depreciation. These can be helpful to businesses by allowing them to take an immediate tax write off when they purchase new equipment.
The new tax law also provides good news for people that operate a real estate trade or business with expanded depreciation rules. Plus, Section 199 A Deduction now allows for a 20% deduction of taxable income for certain business owners. This video is designed to help you be poised to take advantage of these tax savings.
The first thing I would like to cover is the Expanded Cost Recovery Provisions, otherwise known as depreciation. A lot of small businesses take advantage of Section 179 Depreciation & Bonus Depreciation each year when they purchase new equipment as an immediate tax write-off in their business. The good news here, is Section 179 has been expanded; you may now deduct up to a million dollars with a phase-out of 2.5 million. The key is the equipment or asset that is purchased, must be in service in your business by 12/31/18 in order for you to take advantage of this for the 2018 tax year. It should also be noted, in the new law the provisions on depreciation go into effect September of 2017; therefore, as you are filing your 2017 tax returns keep that in mind, because there may be some advantages for this past year that you could still take advantage of now and then again in the future.
The next opportunity that I would like to cover with you is that of interest expense. Under the new law, interest expense is now limited to 30% of the taxable income of a business and that which is not deducted will carry forward to the next year. This is something to keep in mind when planning out such things as, do I buy an asset outright, do i finance it, do I take on debt to grow my business? It is very important that you consider these new limitations because they could have unintended consequences if you are not prepared for them.
Those of you in real estate may be asking, “What are we going to do because we have these mortgages and we have these other things?” Well, the good news is, there is a special break for people in a real estate trade or business. The interest expense for real estate trades or businesses is still fully deductible provided that you make an election. That election will also preclude you from taking advantage of the expanded depreciation rules, something to take into careful consideration when working with real estate trades or businesses. Talk to a CPA about this, they will be able to help you.
The third and final item that we are going to cover is, Section 199 A Deduction, the granddaddy of them all. Section 199 A Deduction is the crux of the new tax legislation; this is the item that is going to give small businesses in the United States a tremendous break. However, first we have to determine what type of business you are. For example, are you a service business, are you a business that makes something, are you a real estate business? Ultimately, Section 199 A Deduction will allow 20% of the taxable income of certain businesses to be deducted at the shareholder, or partner, or sole proprietor level. Again, it is too much to unpack and go through line by line right now, but I suggest you talk to a CPA about this, they will be able to walk you through this calculation and make sure that you are poised to take advantage of it in 2018.
If you have any questions, comments, or ideas for future videos, please let us know.