Tax Cuts and Jobs Act Changes for Small Businesses and Self-Employed Individuals

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) introduced many changes for small business and self employed individuals. Today we will take a moment to highlight a few of the key changes along with calling out a recent publication from the IRS which covers what’s new for businesses in regards to the TCJA.

Tax Cuts and Jobs Act Changes for Small Businesses and Self-Employed Individuals

Qualified Business Income Deduction

The Qualified Business Income Deduction is generally the lesser of Qualified Business Income (QBI), Real Estate Investment Trust Dividend (REIT), and Publicly Traded Partnership (PTP) income amounts, or 20 percent of taxable income minus the taxpayer’s net capital gain.  The deduction is available for many individuals, including owners of sole proprietorships, partnerships, and S corporations.  To be eligible the taxpayer’s taxable incomes must fall below $157,500 for single taxpayers and $315,000 for joint returns.  After the taxable income threshold is met the deduction may still be available, but limitations may apply.

Temporary 100 Percent Expensing (bonus depreciation)

For qualifying property acquired and placed in service after September 27, 2017 and before January 1, 2023, businesses can generally write off 100% of the cost of the property and related expenses with putting the property into use.  Most machinery, equipment, computers, appliances, and furniture will qualify.

Business related losses

Net Operating Loss (NOL) rules have been changes so that for most taxpayers, a NOL arising in tax years ending after Dec. 31, 2017 can only be carried forward.  NOLs for farming businesses and insurance companies (other than life insurance) can generally still be carried back two years. For tax years beginning after December 31, 2017 will be limited to 80% of taxable income.  Rules for existing or pre-2018 NOLs remain the same.

Expensing Depreciable Business Assets

The TCJA increased the maximum section 179 property deduction from $500,000 to $1 million.  Section 179 allows a taxpayer to elect to expense the cost of any qualifying property and deduct it in the year it was placed in service.  The threshold at which phase-out begins has also been increased from $2 million to $2.5 million (to be adjusted for inflation in subsequent years).

Publication 5318, Tax Reform: What’s New for Your Business

The IRS has published a 12 page PDF to provide a general overview of many of the TCJA changes including:

  • Qualified Business Income Deduction
  • Depreciation
  • Business related losses
  • S corporations
  • Farm provisions
  • Miscellaneous provisions

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