There have been many changes to tax law which are effective for 2018, which is why you’re definitely going to want to have a chat with your Accountant before the end of the year. (Don’t have one? Find one today!) Here are 3 questions that you definitely want to ask as soon as possible.
What’s this new 20% deduction on business income?
As a small-business owner, this is likely one of your biggest questions. The Tax Cuts and Jobs Act added Section 199A, a provision that allows owners of sole proprietorships, S corporation, or partnerships (pass-through entities) to deduct up to 20% of the income earned by the business. The goal of this provision was to attempt to reduce the effective top rate on income earned by pass-through entities. The new effective tax rate is 29.8% (down from 37%), though that still isn’t as low as the new C corporation rate of 21%.
While that sounds great, you may not actually be eligible for the deduction. Qualified business income (QBI) is defined as income associated with business activity conducted in the United States – NOT including reasonable owner compensation, guaranteed payments, or investment income. You’re definitely going to want to ask your Accountant if your business is eligible and if there are certain strategies you should consider to maximize the deduction.
How will the new tax law changes affect my business?
Your Accountant knows your business and the new changes in detail. She can help you see the big picture of 2018 and decide if there are any changes you need to make in your business before the end of the year to help you take advantage of some of the changes – and mitigate the effect of others. That might mean making a big equipment purchase before January 1 instead of after. Or choosing a different entity structure for your business.
How will the new tax law changes affect me personally?
It’s important to know how the changes will affect you personally as well, as there were dramatic changes on that side of tax law as well. The personal exemption has been eliminated, the standard deduction has increased, and many deductions that people used to take (tax prep expenses, moving expenses, casualty and theft losses) are gone.
There are so many other changes for 2018, it’s impossible to list them all here for you. Just know that it is essential you talk to your Accountant before the end of 2018 to make sure you understand how these changes will affect you and your business, what you can do to make sure you are in the most tax advantageous position before the end of the year, and what to expect come April 2019.
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.