Commercial buildings and improvements generally are depreciated over 39 years, which essentially means you can deduct a portion of the cost every year over the depreciation period. (Land isn’t depreciable.) But special tax breaks that allow deductions to be taken more quickly are available for certain real estate investments. Some were enhanced by the Tax Cuts and Jobs Act (TCJA) and may provide a bigger benefit when you file your 2018 tax return. But there’s one break you might not be able to enjoy due to a drafting error in the TCJA. Contact us to learn more.
To claim an itemized deduction for a donation of more than $250, generally you need a contemporaneous written acknowledgment from the charity. “Contemporaneous” means the earlier of 1) the date you file your income tax return, or 2) the extended due date of your return. If you made a donation in 2018 but haven’t received substantiation and you’d like to deduct it, consider requesting a written acknowledgment from the charity and waiting to file your 2018 return until you receive it. Additional rules apply to certain types of donations. Contact us to learn more.
Under the TCJA, unmarried taxpayers could see their taxes go up due to their filing status. To further eliminate the marriage “penalty,” the TCJA changed some of the middle tax brackets, negatively affecting some unmarried filers. For example, single and head of household filers could be pushed into the 32% (33% in 2017) and 35% tax brackets much more quickly than pre-TCJA. It will be hard to tell exactly how specific taxpayers will be affected by TCJA changes until they file their 2018 tax returns. Contact us for help assessing your tax bracket for 2018 and 2019.
Let the buyer beware: Do-it-yourself acquisitions can lead to costly mistakes! Before acquiring another business, you need to conduct comprehensive due diligence. This can be a daunting task, especially if it’s your first time negotiating a deal. In addition to evaluating historical and prospective financial statements, we can help you identify potential hidden liabilities and misrepresentations, as well as prepare independent forecasts and projections. This information is critical when determining the optimal offer price and deal terms.
A variety of tax-related limits affecting businesses are annually indexed for inflation, and many have increased for 2019. For example, the Section 179 expensing limit has gone up to $1.02 million from $1 million. Also up are the income-based phase-ins for certain limits on the new-last-year Sec. 199A qualified business income deduction for owners of pass-through entities. And most limits related to employer-sponsored retirement plans, such as 401(k)s, are higher this year. Contact us for more information about the limits that will affect your business in 2019.
Most TCJA provisions went into effect in 2018 and apply through 2025 or are permanent, but two major changes affect individuals beginning in 2019: 1) While the TCJA reduced the medical expense deduction threshold from 10% of adjusted gross income to 7.5%, the reduction applies only to 2017 and 2018. So for 2019, the threshold returns to 10%. 2) For divorce agreements executed (or, in some cases, modified) after Dec. 31, 2018, alimony payments won’t be deductible by the payer but will be excluded from the recipient’s taxable income. Contact us for details.
A higher IRS mileage rate means larger tax deductions for business miles in 2019. The optional standard mileage rate used to calculate the deductible costs of operating an auto for business has increased by 3.5 cents, to 58 cents per mile. The mileage rate comes into play when businesses don’t want to keep track of actual vehicle-related expenses. But you still must record certain information, such as the mileage, date and destination for each trip. The mileage rate can also be used for reimbursing employees. Many rules and limits apply. Contact us for details.
Cash is king. Unfortunately, the accounting concept of “profits” may not be the best metric for gauging whether a business is on top of its game. There are many reasons profits and cash flow might differ, including changes in working capital, fixed assets, financing and owners’ capital. Business owners need to look beyond profits to ensure they have enough cash on hand to pay employees, suppliers, lenders and even the IRS. If you’re profitable but having trouble making ends meet, we can brainstorm ideas to help you more effectively manage the cash flow cycle.
There aren’t too many things businesses can do after a year ends to reduce tax liability for that year. But you might be able to pay employee bonuses for 2018 in 2019 and still deduct them on your 2018 tax return. To be eligible for this favorable tax treatment, you must be an accrual-basis taxpayer and the bonus liability must have been fixed by the end of the tax year, which requires passing the “all-events test” and may necessitate a bonus pool arrangement. If you’re a calendar-year company, you must pay the bonuses by March 15. Contact us to learn more.