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Reviewing changes for the tax reform law

2018 will be the first fiscal year the Tax Cuts and Jobs Act of 2017 will come into effect. As we approach the halfway point to Tax Day, the IRS released a statement reminding small business owners to learn about how the changes from the new tax laws will impact their company.

Given the numerous changes that occur to different types of business owners, it can be difficult for small businesses in Seattle to keep track of what to watch out for when preparing taxes for their companies. It is important to familiarize yourself as soon as possible so you can begin making changes in your tax plans and to avoid suffering any consequences from procrastination.

Tax deductions

The biggest news for small businesses to come out of the act is the 20 percent tax deductions that small businesses will receive. The lawmakers hope that the IRS taxing you on only 80 percent of your income will allow your business a better chance to flourish. It has led to many business owners to question what to establish themselves as. Some consider reorganizing as a C corporation given how larger companies will have larger reduction rates from the act.

You should be aware that not all small businesses can apply the 20 percent deduction. Workers with service businesses such as doctors and law firms cannot benefit from this if their income exceeds $157,500 for singles and $315,000 for married couples. Companies that face these restrictions are developing strategies to get that deduction, but fail to consider other restrictions the IRS put onto these deductions within the last year.

Auto service depreciation

If your small business has a company passenger vehicle, the act increases auto depreciation allowances as long as it is used primarily for business purposes. You may need to provide additional proof if you use the vehicle for other purposes outside of your company. The current limits on these allowances are:

  • $10,000 for the first year
  • $16,000 for the second year
  • $9,6000 for the third year
  • $5,760 for the fourth year and going forward.

The allowances will adjust for inflation every year, so make sure to keep an eye out for those changes when recording for future tax purposes. Additionally, company cars purchased between September 28, 2017 and December 31, 2026 can receive an additional $8,000 for their first-year depreciation allowance.

Net operating losses

A net operating loss (NOL) happens when your expenses outweigh your income when you are determining tax deductions. The new law no longer allows businesses to perform a two-year carryback and instead will only allow you to deduct them in current or future years. Coinciding with the 20 percent tax deduction, the act also only allows you to deduct 80 percent of the NOL.

The new changes will feel overwhelming to numerous small business owners. Seattle business owners may be tempted to reshape the policies or structures of their company to accommodate with these new deductions and appreciations. If you need assistance in developing strategies to take advantage of these new tax laws, a business attorney can provide up to date knowledge on the material and advice on how you can properly adjust to the act.

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