Taking advantage of new TCJA tax breaks for businesses.
It happened again – the federal tax law changed. For some owners of pass-through entities such as LLCs, or sole proprietorships, the Tax Cuts and Jobs Act (TCJA) is good news. However, the advantages aren’t one-size-fits-all.
The more business owners and shareholders understand the new law, the better prepared they’ll be at tax time.
How to maximize your tax savings
As one might expect, there’s a give and take to the tax cuts. Credits were cut, and credits were preserved; provisions were added, and provisions were removed. There’s a significant amount to keep up with. Here’s an overview of what you need to know to save at tax time.
- 20 percent reduction for pass-throughs. The new bill grants a 20 percent deduction to certain pass-through entities such as LLCs, S corporations, and partnerships. Here’s the catch: for those filing as single, to qualify for the full deduction, their taxable income must be below $157,500; joint filings are limited at $315,000. All businesses under the threshold are eligible. Reduced deductions for incomes beyond those limits for certain professionals – such as lawyers, doctors, and financial advisors – may be ineligible.
- 179(d) expansion. Commercial buildings with energy efficient lighting, building envelopes, climate control, or water heating systems installed between the years 2006 and 2017 are eligible for a tax deduction. The new bill increased 179(d) from $500,000 to $1 million, and the phase-out bumped up an equal amount to $2.5 million.
- R&D tax credit. Another change empowers companies to choose an R&D tax credit in favor of the alternative minimum tax (AMT). For many businesses this revision allows them, for the first time, to put R&D tax credits to use. There is, of course, a disclaimer – qualifications must be met – however, the intention of this provision is for a wide range of industries to benefit from the credit.
- State and local tax deductions. The TCJA made extensive reductions on some deductions for state and local tax payments. One way of compensating – in some states – is to file for a state R&D tax credit. Also, the Work Opportunity Tax Credit (WOTC) provision of the TCJA, offers a tax benefit for businesses who hire from certain demographics. Veterans, the long-term unemployed, and citizens on the federal support are examples of those who qualify. Like the R&D credit, many states have their own version of the WOTC.
- Accounting method changes. For small and medium businesses, the TCJA will usher in some helpful revisions to accounting practices. Such entities will have increased access to the cash method of accounting, from $5 million to $25 million, over a three-year
- Good news for exporters. After coming face to face with elimination, the IC-Disc export incentive survived the update. Companies involved in architectural and engineering, selling software, or exporting goods, are eligible for significant tax relief.
How does all this apply to Philadelphia businesses?
Clarification from the IRS is still forthcoming. The TCJA is littered with specific criteria for most of the new benefits. It’s best to huddle up with your accounting team to understand how the new bill will affect Philadelphia’s home building and heavy construction entities.
No Boundaries CPA has been serving Philadelphia businesses for over 25 years. We take pride in our city, and the health of our local economy – we’re ready to help Philadelphia make the most out of the TCJA. For more information on how your business can benefit from the new tax law, we encourage you to connect with us online – or give us a call at 856-753-0025.
