As a business owner, I’m always looking into tax laws for any new credit and deductions that I’m able to claim. Plus the tax code could change each year, so that’s why it’s important to stay on top of your finances and know what you’re eligible for because you could see tax savings.
Some of the business expenses that you may be able to deduct for your business include:
- Training and licensing expenses
- Mileage or Actual Expenses for the business use of your car
- Marketing and advertising costs
- Travel, if you attend any out-of-town conventions, training sessions, or conferences
- Meals you pay for when meeting with clients for business purposes. Under IRS guidelines, you can deduct 50% of the cost of business-related meals.
- Home office, if you work out of your home. If you have a home office that represents 10% of the square footage in your home, you’ll be able to deduct 10% home costs like mortgage interest, property taxes, rent, and utilities.
- The purchase of office equipment, such as a dedicated business computer, printer, smartphone, or fax machine.
- Internet and cell phone expenses.
You may be looking for entertainment expenses in the list, however, entertainment expenses like treating your client to a sporting event were eliminated under the new tax law.
The Tax Cuts and Jobs Act (TCJA) of 2017 also made other changes to the tax code. You’ve probably read about much of it in the news, since it almost doubled the standard deduction, eliminated personal exemptions and may have limited other deductions.
But, it also introduced or increased some business-related tax deductions you should know about.
20% Qualified Business Income Deduction
The 20% Qualified Business Income (QBI) deduction is one of the biggest business-related tax changes under tax reform.
For the tax years, 2018 through 2025, the new 20% QBI deduction allows self-employed, S-Corps, and partnerships to deduct 20% of their qualified business income, which is income associated with business activity in the United States.
The Qualified Business Income Deduction is subject to a few limitations based on the type of income, type of trade or business you are in, and the amount of net income you earn, but in general, the deduction is available to eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers.
If your income is above the $157,500/$315,000 taxable income thresholds, your 20% QBI deduction may be limited if your business is considered a service type business like the health, law, or accounting category to name a few. Any business where the principal asset is the reputation or skill of the owner is also included.
Increase in Equipment Deduction Amounts
If you buy equipment in the course of doing business, the new tax law increased the maximum deduction from $510,000 to $1,000,000 for business equipment like computers, printers, and office furniture. The amount you can deduct is still limited to the amount of income from business activity.
Faster Depreciation Schedules for Automobiles
Did you purchase a car for your business after December 31st, 2017? If you use the vehicle for business over 50% of the time, you can claim:
- $10,000 for the first year, (or $18,000 if you claim first-year bonus depreciation)
- $16,000 for the second year,
- $9,600 for the third year, and
- $5,760 for each later taxable year in the recovery period.
The first-year bonus depreciation is only available if the vehicle is new to you or the business. These are big increases from previous years when the depreciation schedules were lower. These are the schedules in 2017:
- $3,160 for the first year, (or $11,160 if you claim first-year bonus depreciation)
- $5,100 for the second year,
- $3,050 for the third year, and
- $1,875 for each later taxable year in the recovery period.
Don’t worry about knowing these tax rules. TurboTax Self-Employed will ask you simple questions about you and your business and give you the tax deductions and credits you’re eligible for.
TurboTax Self-Employed finds industry-specific tax deductions you may not have even known were possible. If you have questions, you can connect live via one-way video to a TurboTax Live Self-Employed CPA or Enrolled Agent with an average of 15 years experience to get your tax questions answered. A TurboTax Live Self-Employed CPA or Enrolled Agent can also review, sign, and file your taxes from the comfort of your home.
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