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What Small Business Tax Breaks are Disappearing in 2018?

You’ve probably heard a lot about the Tax Cuts and Jobs Act and how itcould change your personal tax return. But, have you thought about how it will affect the tax return for your small business?

Are You a Corporation or a Pass-Through Entity?

If your small business is registered as a corporation, your taxable income will now be taxed at a rate of 21%. This is a permanent change.

If your small business is registered as a pass-through entity (a sole proprietorship, partnership, LLC, or S-Corp), you can now deduct 20% of your qualified business income (QBI). Your QBI is your gross revenue minus any business expenses.

If your total taxable income for the year is less than $157,500 (if you’re filing single) or $315,000 (married, filing joint), then you can take the full 20% deduction.

If you’re filing single and make between $157,500 and $207,500, you can still get a portion for the deduction. If you’re married filing jointly and make between $315,000 and $415,000, then you’ll also get a portion of the deduction.

This 20% deduction will be in place until 2025.

5 Changes to Small Business Tax Breaks

The Tax Cuts and Job Act also removes some of the tax breaks you might be used to.

Entertainment

In the past, you could deduct 50% of your expenses when entertaining your customers, vendors, or suppliers.

Now, you cannot deduct those entertainment costs, even if the expenses are reasonable or essential to your small business.

Parking & Transit Fringe Benefits

If you offer parking and transit fringe benefits to your employees, those benefits are no longer deductible.

Office Snacks & Meals

Do you stock your office’s kitchen with snacks or cater meals to thank your employees? Good news! Those snacks and meals are still deductible. However, you can only deduct 50% of the expenses, as opposed to the previous deduction of 100%.

Business Interest

In the past, you could deduct any interest paid on business loans. Now, you can only write off interest expenses that are equal to 30% of your adjusted taxable income.

There is a small business exception to this new rule. If your business’s gross receipts were $25 million or less over the last three tax periods (ending with the prior tax year), then you’re exempt from these changes.

Net Operating Loss

If you have a net operating loss, you used to be able to use those losses to either reduce taxes paid in the past two years or to reduce future taxable income for the next 20 years.

Now, you can only carry your net operating loss forward. And, you can only use the loss to reduce your taxable income by 80%. But you can carry the loss forward indefinitely.

For example, if you had a net operating loss of $100,000 in 2017, you can use that to reduce your 2018 taxable income, but only by 80%. If you made $100,000 in 2018, you could use your 2017 net operating loss to reduce your income by 80% and bring it down to $20,000.

*If you have any questions about your small business tax return, please talk to your accountant or a tax professional. *