The Coronavirus has impacted our daily lives significantly. To address this impact, recent announcements by the Internal Revenue Service have been made that allow for delayed Corporate and Individual tax filing and payments beyond the upcoming April 15 deadline. The revised due date for both returns and payments is now July 15.
If you have not planned for your 2019 corporate return preparation or would like guidance on tax planning, see below for some topics that are a result of the Tax Cuts and Jobs Act (TCJA) that became effective on 2018 returns. Reach out to us to discuss how your business was impacted. Did you or your existing tax preparer get the most out of the changes?
Business Owner Deduction
For qualified pass-through entity business owners, the TCJA allows for a 20% deduction of qualified income. With this new deduction comes limitations and restrictions on who qualifies, based on taxable income and type of industry your business is in. Contact us at Davie Kaplan, CPA, PC to discuss how this applies to your business.
Another significant benefit coming out of the TCJA impacted C-corporations. This type of entity experienced a tax rate reduction from a tiered system that topped out at 39.6% to a flat 21% rate. This presents a good opportunity to evaluate the best tax election for your business: a pass through that takes advantage of the 20% business owner deduction or a C-corporation with a flat 21% rate.
The TCJA also included the elimination of the majority of entertainment and recreation expenses that are deductible. This means there are no deductions for tickets to concerts, sporting events, trips or other similar items. Business-related meals are still deductible at half the cost if the employee is present and if the meals are not overly extravagant. Any food and beverage purchased during entertainment events are still not deductible.
Promotional events that center around the company, employee gatherings, and holiday parties are still deductible.
The SALT Deduction:
As of 2018, the TCJA introduced a limit of $10,000 in SALT (state and local tax) deductions for individual filers, while in previous years, there was no limit. For pass through business owners it is important to review your local and state tax payments to make sure you are getting the most out of these deductions. One way to consider this is to bunch your itemized deductions as mentioned next.
In 2019 the standard deduction is $12,200 for single filers and $24,400 for those filing jointly. Due to this increase, there will be fewer people benefiting from itemizing on their returns, especially given the $10,000 SALT limitation. It is a good exercise to discuss with your tax accountant how bunching charitable contributions in an every other year format could allow you to gain additional tax deductions over the standard deductions allowed.
Preparing For The Year To Come:
When it comes down to it, despite the changes in tax law year to year it is always important to make sure your tax structure is reviewed with your tax professional. This will ensure you and your business are best prepared to minimize the tax burden on your income earned. At Davie Kaplan, we are here to assist you with your year-end tax planning, long-term strategy and yearly tax compliance needs. Contact us today to speak to our dedicated team of experts.