The tax law has mistreated hobbies for a long time. But the most recent tax reform brings the grim reaper to the party, and it’s not pleasant. This means you need to focus on making your activity a business and not a hobby. Under both prior law and the new law after the recent tax…
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Chart of Meals and Entertainment after Tax Reform
Tax reform has had a significant impact on the tax deductions you can now claim for business entertainment and meals. The chart below shows you how the Tax Cuts and Jobs Act treats 12 meal and/or entertainment events. 100% Deductible for 2018 50% Deductible 0% Deductible Amount Deductible for Tax Year 2018 Description 100%…
Did Tax Reform Goof When Disallowing Deductions for Client Meals?
Tax professionals want tax deductions for business meals with clients and prospects. Business owners want those meals deductible, too. Add us to this list. We want that deduction for our clients (and, of course, for ourselves). In recent days, we learned that lawmakers did not intend to eliminate business meals with clients and prospects. We’re…
Does Tax Reform Dislike Your Reputation or Skill?
Here’s a troubling thought. Did lawmakers put you in the out-of-favor tax group that denies you the 20 percent Section 199A deduction because your business makes too much money, and does so thanks to the reputation or skill of one or more of the business’s owners or employees?
Tax Reform Creates Desire for the C Corporation
When you first see that 21 percent tax rate for the C corporation, you have to think that this could be the choice of entity for your business operation. Further, when you find yourself in the out-of-favor group for the 20 percent deduction authorized by new tax code Section 199A, you naturally gravitate to thinking…
Tax Reform Allows Bigger Vehicle Deductions
Finally, lawmakers did the right thing by increasing the luxury auto depreciation limits on business cars. The old luxury limits were unrealistic, punitive, unfair, and discriminatory against any car that cost more than $15,800. The new limits don’t create parity in all respects, but they are a big improvement.
Tax Reform Really Did Eliminate Prospect and Client Meal Deductions
You likely have heard conflicting information on the deductibility of business meals with clients and prospects. We have spent time researching this issue, and our conclusion is that tax reform eliminated tax deductions for business meals with clients and prospects.
Tax Reform Allows 100 Percent Deductions for Presentation Expenses
Tax reform did much damage to tax deductions for business entertainment and meal expenses. But meals served at business presentations survived the entertainment and prospect and client meal bloodletting. And not only did presentation expenses survive as deductions, but they also continue as 100 percent business expense deductions.
Tax Reform Cuts Business Tax Deductions for Charity Golf Outings
You likely know that the recent reform did away with business tax deductions for prospect and client golf. But did you know that charity golf is gone too? Buried in tax reform is the elimination of the 100 percent business deduction for charity golf and other special charitable sporting events.
Tax Reform Creates Taxes on Employee Fringe Benefit for Bicycles
Tax reform created taxes on the employee fringe benefit for bicycles. You could (and can) deduct your costs for reimbursing employees for their qualified bicycle transportation costs. But tax reform now makes this bicycle transportation benefit a taxable event for your employees.
Tax Benefit for Business Vehicle Trade-In Eliminated
Beginning January 1, 2018, tax reform no longer allows Section 1031 exchanges on personal property such as your business vehicle.
Tax Reform Cuts Deductions for Employee Meals to 50 Percent
Tax reform (Public Law 115-97) includes winners and losers. Employers who, for their convenience, provided business meals for their employees are losers—50 percent losers to start, and then total losers later.
Entertainment That Survived Tax Reform
You may no longer deduct directly related or associated business entertainment effective January 1, 2018.
Tax Reform Destroys Entertainment Deductions for Businesses
First, lawmakers reduced the directly related and associated entertainment deductions to 80 percent with the 1986 Tax Reform Act. Later, in 1993, they reduced that 80 percent to 50 percent. And now, with the newest tax reform, lawmakers simply killed business deductions for directly related and associated entertainment effective January 1, 2018.
Preserve the Deduction with an S Corporation
Will your business operation create the 20 percent tax deduction for you? If not, and if that is due to too much income and a lack of (a) wages and/or (b) depreciable property, a switch to the S corporation as your choice of business entity may produce the tax savings you are looking for.
How the 20% Deduction Works for a Specified Service Provider
As discussed above, the 20 percent tax deduction under new 2018 tax code Section 199A is a very nice tax break for business owners, except for owners with high income who also fall into the out-of-favor group.
Phaseout for New 20% Deduction
If your pass-through business is an in-favor business and it qualifies for tax reform’s new 20 percent tax deduction on qualified business income, you benefit at all times, including being above, below, or in the expanded wage and property phase-in range.
Tax Reform Provides New 20% Deduction
The new 2018 Section 199A tax deduction that you can claim on your IRS Form 1040 is a big deal. There are many rules (all new, of course), but your odds as a business owner of benefiting from this new deduction are excellent.
Cashing Out Real Estate Profits without Section 1031
Paying taxes on the sale of your real estate is voluntary. You do not need to volunteer. Whenever you can, avoid the outright taxable cash sale of investment property. To avoid taxes while you build your portfolio of real estate investments, use the Section 1031 exchange. This strategy allows you to acquire bigger and better…
Rental Property as a Business Yields Big Benefits
If your rental property activity meets the definition of a trade or business activity, then your rentals produce the best possible tax benefits. In general, you report your rental properties on Schedule E of your tax return. When your activity rises to the level of a business, you continue to report the rentals on Schedule…