I have prepared this tax update to remind you of issues, most of which I have previously written about. Here are my ramblings on items I hope will interest you.
- Section 179 expensing. Small businesses can elect to immediately write-off up to $1 million of asset purchases.
- Bonus depreciation. As if the Section 179 expensing is not enough, you can expense 100% (increased from 50%) of qualified property. Qualified property now includes used as well as new property.
- Auto depreciation. Maximum first year deduction is $10,000 up from $3,160 in 2017. Even a used car may be eligible for $8,000 of depreciation.
- Business pass through deduction. Owners of pass through entities (Sole proprietorships, partnerships and S corporations) can deduct 20% of the net business income on their personal returns. Most service business income is excluded from this deduction (except from architects and engineers). However, the restriction doesn’t apply to lower taxable income ($157,500 and up for single filers, $315,000 for joint filers).
- Solo 401(k). Business owners can defer up to $18,500 of compensations plus $6,000 if over age 50. The business can also contribute on behalf of the business owner which can result in more than the traditional $55,000 normal maximum.
- Tax break strategy. Buy your parents’ home and rent it back to them. If your parents are unable to itemize (and who can now), this strategy can generate some family tax savings. You must both buy the house at FMV and rent it back to your parents at the market rental rate (can be reduced by 20%). This strategy puts money in your parents’ pockets while giving you a possible tax write-off.
- Like Kind Exchanges. Use a qualified intermediary!
- Gifts to employees. Employee gifts will almost always be re-characterized as compensation. Withhold from those holiday bonus checks!
Beware of emails and telephone calls from the “IRS”. Both phony emails and telephone calls from people that represent that they are with the IRS is increasing dramatically. Before you respond to either contact your tax professional.