Things to look for as the year races to a close
by Curt Kleoppel, October 20, 2019
I hope everyone is having a good year and you are starting to look at ways to use the Tax Cuts and Jobs Act signed into law on Dec. 22, 2017, to benefit your business and personal tax returns for 2019.
We know the biggest deduction for our industry was the floor plan interest deduction for farm equipment dealerships. The Western Equipment Dealers Association was instrumental in getting this in the TCJA to keep this important business expense fully deductible each year. Regular business interest deduction can be limited but you are allowed to carry it forward for future deduction.
The corporate tax rate is now a flat 21%, which is great for existing C corporation businesses and even caused some entities to change to a C corporation. Consult with your tax professional to see if it makes sense with the change to one tax rate.
Qualified Business Income Deduction
The “Qualified Business Income Deduction” is eligible to sole proprietors, self-employed individuals, partners in partnerships, beneficial owners of trusts, and shareholders in S corporations may allow them to deduct up to 20% of their qualified business income. This effectively puts the S corporations on more of an equal playing field with C corporations having a flat rate tax of 21%. The deduction can be limited due to Adjusted Gross Income, wages paid or not paid within the entity, etc. Just make sure you get the 20% pass through deduction or the reason it was limited/not allowed by your tax professional.
Bonus depreciation deduction of 100% for qualified property is allowed if purchased after Sept. 27, 2017, and before Jan. 1, 2023. This applies to new or used property acquired. Bonus depreciation is great for updating your fixed assets and reducing your tax liability. The taxpayer also has Section 179 deduction of immediately expensing more of their business assets. The deduction is up to $1 million and the deduction phases out starting at over $2.5 million of fixed assets acquired during the year. We will see the Section 179 deduction and phase out amounts adjusted for inflation after 2018. We will see new amounts coming later this year.
The TCJA generally eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. Businesses can still deduct 50% of the cost of business meals if properly documented and not considered lavish or extravagant.
Employers can receive a general business credit for wages paid to qualifying employees on family and medical leave, subject to certain conditions. The employer must have a written policy in place that meets certain requirements, including providing:
- at least two weeks of paid family and medical leave (annually) to all qualifying employees who work full time (prorated for employees who work part time), and
- the paid leave is not less than 50% of the employee wages. Credit applies up to Jan. 1, 2020.
Personal tax and itemization
On the personal tax, we are seeing fewer taxpayers being able to itemize their deductions. The changes in the increase standard deduction of $24,000 for married and $12,000 for single filers has caused a few taxpayers not being able to itemize their deductions. The other reason is the limit on the state income tax deduction, personal property taxes paid and real estate taxes paid, which is limited to a combined total of $10,000. Ouch.
Mortgage interest – Charitable donations
Mortgage interest is still deductible for the most part. The one itemized deduction left alone was contributions. You might want to think about increasing your contributions to your favorite charitable organizations to enable you to itemize your deductions beyond the standard deduction of $24,000 for married and $12,000 for single filers. You not only help a worthy cause but also save up to 39.6% federal tax (depending on AGI). A win, win situation.
We don’t anticipate any changes in the tax law coming this fall so make sure you take advantage of the current tax laws in affect. Feel free to call the association hotline at 800-762-5616 with any questions.
Article Written By Curt Kleoppel
CURT KLEOPPEL, CPA, CVA, is the treasurer of the Western Equipment Dealers Association. He also serves as president of Equipment Dealer Consulting, LLC, a long-term association partner. The consulting group was created to provide financial services to association members. For information, visit www.eqdealerconsulting.com or write to firstname.lastname@example.org.