This tax season is an important one for many business owners because it’s the first that will be impacted by the Tax Cuts and Jobs Act (TCJA). How big of an impact is dependent on your unique situation. We’ve compiled this short list of provisions that may affect the business community:
- New deduction for qualified business income of pass-through entities. This new provision, also known as Section 199A, allows a deduction of up to 20% of qualified business income for owners of some businesses. Limits apply based on income and type of business.
- Limits on deduction for meals and entertainment expenses. The TCJA generally eliminated the deduction for any expenses related to activities considered entertainment, amusement or recreation. However, under the new law, taxpayers can continue to deduct 50% of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant.
Meals may be provided to a current or potential business customer, client, consultant or similar business contact. If provided during or at an entertainment activity, the food and beverages must be purchased separately from the entertainment. Or, the cost of the food or beverages must be stated separately from the cost of the entertainment on one or more bills, invoices or receipts. Notice 2018-76 provides additional information on these changes.
- New limits on deduction for business interest expenses. The change limits deductions for business interest incurred by certain businesses. Generally, for businesses with 25 million or more in average annual gross receipts, business interest expense is limited to business interest income plus 30% of the business’s adjusted taxable income and floor-plan financing interest. There are some exceptions to the limit, and some businesses can elect out of this limit. Disallowed interest above the limit may be carried forward indefinitely with special rules for partnerships.
Of course, there are many other provisions to be aware of. And given the magnitude of some changes under the TCJA, you may want to contact our firm for further guidance.