Business asset purchases can be deducted in several different ways. 100% bonus depreciation is back. Both new and used qualifying assets can be fully depreciated in the year of purchase. Section 179 expensing is also available. The limit of $1M of asset purchases doesn’t affect many small businesses. The taxable income limitation can be used to your advantage if you expect high taxable income in the following year. The annual depreciation for passenger business vehicles has been dramatically increased. Buyers of SUVs and trucks (over 6,000 lbs. gross weight rating) used solely for business can write off the entire cost of these vehicles.
Business owners can use the traditional strategies to shift income between 2018 and 2019. More businesses can use the cash basis of accounting. The gross receipts threshold was increased from $5M to $25M. Business owners can delay or accelerate sending out invoices and accelerate or delay paying expenses. Just remember that buying inventory and paying down debt may be good financial moves but provide little if any tax benefit.
I am most excited about the new 20% deduction for pass-through income! Sole proprietors and owners of LLCs and S Corps can deduct 20% of their qualified business income. There are several provisions that may limit or disallow the deduction, however, I believe most small business owners will greatly benefit from the deduction.
Another favorite strategy of mine is using your Required Minimum Distribution to make charitable contributions. Great bang for the buck if you are charitably minded, must take RMDs from your IRA, and don’t itemize. The result is the RMD isn’t taxable to you and you don’t have to itemize to benefit. Also, your taxable income is not increased by this maneuver, so it doesn’t increase the tax on your social security nor does it negatively affect all the other limitations and phase outs based on taxable income.
Business owners need to determine that they have enough federal income tax withholding to avoid the underpayment penalty. A year end bonus with lots of withholding may be needed to accomplish this objective.
Business expenses charged on credit cards are deductible in the year charged not the year paid. This allows business owners to get tax deductions this year and pay for them next year. WARNING: Don’t overdo this strategy!
David M. Snyder, CPA
The Tax Axe, LLC