Important Tax Changes for Businesses
By: Tax Hotline
Winter 2019 (Vol. 36, No. 4)
In 2019, the rate for business miles driven increases to 58 cents per mile. The Section 179 expense deduction increases to a maximum deduction of $1,020,000 of the first $2,550,000 of qualifying equipment placed in service during the current tax year. This amount is indexed to inflation for tax years after 2018. The deduction was enhanced under the TCJA to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems. Also, costs associated with the purchase of any sport utility vehicle, treated as a Section 179 expense, cannot exceed $25,500.
Businesses can immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years beyond.
The Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. The Qualified Business Income Deduction allows eligible taxpayers to deduct up to 20 percent of certain business income from qualified domestic businesses, as well as certain dividends. To qualify for the deduction business income must not exceed a certain dollar amount. In 2019, these threshold amounts are $160,700 for single and head of household filers and $321,400 for married taxpayers filing joint returns.
The Research & Development Tax Credit allows businesses with less than $50 million in gross receipts to use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.
When determining employee health insurance expenses for taxable years beginning in 2019, the dollar amount of average wages is $27,100 for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.
For business meals and entertainment expenses, the deduction remains at 50% for taxpayers who incur food and beverage expenses associated with operating a trade or business. For tax years 2018 through 2025, however, the 50% deduction expands to include expenses incurred for meals furnished to employees for the convenience of the employer. Amounts after 2025, however, will not be deductible. Office holiday parties remain 100% deductible and employee meals while on business travel also remain deductible at 50%. Also eliminated is the deduction for business entertainment expenses (only meals are deductible at 50%; receipts must identify and separate out meal costs from entertainment costs).
If you provide transportation fringe benefits to your employees in 2019, the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $265. The monthly limitation for qualified parking is $265.