The Internal Revenue Service wants business owners and the self-employed to know that a publication on IRS.gov has information they can use to learn which recent tax-law changes impact their bottom line.
This news release is part of a series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional help is available in Publication 17, Your Federal Income Tax, and the tax reform information page.
Publication 5318, Tax Reform: What’s New for Your Business, is a 12-page electronic document. Pub. 5318 provides a general overview of many of the Tax Cuts and Jobs Act (TCJA) changes enacted in December 2017 that impact business taxes.
Publication 5318 includes sections on:
- Qualified Business Income Deduction
- Business related losses
- Business related exclusions and deductions
- Business credits
- S corporations
- Farm provisions
- Miscellaneous provisions
A few key provisions include:
Qualified Business Income Deduction
Many individuals, including owners of sole proprietorships, partnerships, and S corporations and beneficiaries of trusts and estates, may be entitled to a deduction of up to 20 percent of qualified business income (QBI), plus up to 20 percent of their qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. Generally, this deduction is the lesser of the combined QBI, REIT dividend, and PTP income amounts, or 20 percent of taxable income minus the taxpayer’s net capital gain. Claimed on Form 1040, Line 9, the new deduction is generally available to eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. The deduction may also be available for those whose incomes are above these levels but additional limitations may apply.
Temporary 100-percent expensing (bonus depreciation)
Businesses can write off most depreciable business assets in the year they placed them in service. The 100-percent depreciation deduction (bonus depreciation) generally applies to depreciable business assets and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify. The deduction is generally allowable for qualifying property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. For more information, see Publication 946, How to Depreciate Property.
Expensing depreciable business assets
A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed into service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. After 2018, the $1 million and $2.5 million thresholds will be adjusted for inflation.
Business related losses
For most taxpayers, a net operating loss (NOL) arising in tax years ending after Dec. 31, 2017 can only be carried forward. Certain NOLs of farming businesses and insurance companies (other than life insurance) can still be carried back two years. The deduction of NOLs arising in tax years beginning after Dec. 31, 2017, is limited to 80 percent of taxable income, determined without any NOL deduction. This 80-percent limitation does not apply to insurance companies (other than life insurance). Rules for existing or pre-2018 NOLs remain the same.
Taxpayers can find answers to questions, forms and instructions and easy-to-use tools online at IRS.gov. No appointment required and no waiting on hold.
More information is available in Fact Sheet 2019-3, IRS highlights tax reform changes that affect businesses.