As 2019 Begins, It’s Time to Untangle the Tax Reform Bill
As you say goodbye to 2018 and hello to 2019, you will find there are many changes to the tax law that will affect your 2018 corporate return. If you are a business owner, here are the highlights of what you need to know about tax changes for 2018.
Standard Mileage Rates
The standard mileage rate in 2018 is 54.5 cents per business mile driven.
Health Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000 (adjusted annually for inflation). In 2018, this amount is $53,200.
In 2018 (as in 2014-17), the tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 35 percent for tax-exempt employers). For tax years 2010 through 2013, the maximum credit was 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.
Section 179 Expensing and Depreciation
Under the Tax Cuts and Jobs Act of 2017, the Section 179 expense deduction increases to a maximum deduction of $1 million of the first $2.5 million of qualifying equipment placed in service during the current tax year. The deduction was indexed to inflation after 2018 and enhanced to include improvements to nonresidential qualified real property such as roofs, fire protection, alarm systems and security systems, and heating, ventilation and air-conditioning systems.
Businesses are allowed to immediately deduct 100 percent of the cost of eligible property placed in service after Sept. 27, 2017, and before Jan. 1, 2023, after which it will be phased lower over a four-year period: 80 percent in 2023, 60 percent in 2024, 40 percent in 2025 and 20 percent in 2026. The standard business depreciation amount is 25 cents per mile (same as 2017).
Special rules apply to vehicle purchases. In order for a vehicle to qualify for a full Section 179 deduction, it must meet one of the following qualifications:
- It can seat nine-plus passengers behind the driver’s seat (i.e., hotel shuttle vans).
- It has a fully enclosed driver’s compartment/cargo area, no seating behind the driver’s seat and no body section protruding more than 30 inches ahead of the leading edge of the windshield.
- It is an ambulance or hearse.
- It is a taxi, transport van or other vehicle used to specifically transport people or property for hire.
- It is a non-personal-use vehicle specifically modified for business (i.e., a cargo van with shelving permanently installed).
- It is a heavy “non-SUV” vehicle or truck with a cargo area at least 6 feet in interior length (this area must not be easily accessible from the passenger area).
Certain vehicles with a gross weight rating above 6,000 pounds but no more than 14,000 pounds qualify for deducting up to $25,000 if the vehicle is purchased and placed in service prior to Dec. 31.
Tax reform eliminated the multiple tax brackets for C corporations and instead imposed a flat rate of 21 percent.
Owners of S corporations may be eligible for a 20 percent qualified business income deduction on their personal return for 2018. The calculations and rules pertaining to this deduction are complex, so be sure to talk to your tax preparer if you think you might qualify.
Although tax reform seems to always be labeled “simplified,” this is never the case. Be sure to consult a professional if you haven’t in the past. Now more than ever, corporations need professional help to weave through the maze of laws and regulations that we refer to as our tax Code.