By Isaac M. O’Bannon, Managing Editor, CPA Practice Advisor
Some of the changes in the tax reform law mean small businesses can immediately expense more of the cost of certain business property. Many are now able to write off most depreciable assets in the year they are placed into service.
The Tax Cuts and Jobs Act (TCJA), passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. Among those for business owners are tax rate changes for pass-through entities, changes to the cash accounting method for some, limits on certain deductions and more.
Section 179 expensing changes
A taxpayer may elect to expense all or part of the cost of any Section 179 property and deduct it in the year the property is placed in 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. These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017. For most businesses, this means the 2018 return they file next year.
Section 179 property includes business equipment and machinery, office equipment, livestock and, if elected, qualified real property. The TCJA also modifies the definition of qualified real property to allow the taxpayer to elect to include certain improvements made to nonresidential real property. See New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act for more information.
New 100 percent, first-year ‘bonus’ depreciation
The 100 percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify. The law also allows expensing for certain film, television, and live theatrical productions, and used qualified property with certain restrictions.
The deduction applies to business property acquired after Sept. 27, 2017, and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. In general, the bonus depreciation percentage is reduced for property placed in service after 2022. See the proposed regulations for more details.
Taxpayers may elect out of the additional first-year depreciation for the taxable year the property is placed in service. If the election is made, it applies to all qualified property that is in the same class of property and placed in service by the taxpayer in the same taxable year. The instructions for Form 4562, Depreciation and Amortization, provide details.
Business owners can refer to the Tax Reform Provisions that Affect Businesses page for updates.
Be on the lookout for refund scams!
IRS Tax Tip 2018-32, March 1, 2018
The IRS warns taxpayers of a new twist on an old scam. Criminals are depositing fraudulent tax refunds into individuals’ actual bank accounts, then attempting to reclaim the refund from the taxpayers.
Here are the basic steps criminals follow to carry out this scam. The thief:
While the IRS is aware of variations of this scam, the agency also knows that this scam may continue to evolve. Here are two current versions of this scam:
Here are some things taxpayers should remember if someone contacts them about an erroneous refund:
This will be the second year of earlier deadlines for information returns. Below is a refresher list of the due dates for common forms and returns in 2018.
COMMON FORMS AND RETURNS
Instructions for filing these forms can be found here: https://www.irs.gov/pub/irs-pdf/i109495c.pdf
On November 22, 2016, a preliminary injunction was issued that blocks the Department of Labor from enforcing its new regulations that would extend overtime pay to approximately 4 million workers. In a nutshell, the judge argued that DOL overstepped by creating a salary test that overrides the duties test. The new rule excludes any employee whose salary is under the limit (approximately $48,000) from being classified as an exempt employee. The 2004 rule that this new rule would replace also had a salary test, and the current limit is approximately $24,000. The DOL could appeal the injunction, but whether or not it will is completely up in the air.
Below are links to the injunction and to articles with more details.
The IRS and Franchise Tax Board changed the required filing due dates for some business entity tax returns. Extensions are still available, but care must be taken to pay any unpaid taxes by the new due dates. Listed below is a summary of the changes.
Effective January 1, 2017:
We welcome your questions on these and other due date changes.
Earlier this year, President Obama announced the publication of the Department of Labor’s Final Rule updating the overtime regulations, which will go into effect on December 1, 2016. Under the new regulation, the salary threshold for overtime increases, making over 4 million more workers eligible to receive overtime pay at a rate of time-and-a-half when they work in excess of 40 hours in a workweek.
The Final Rule updates the salary and compensation levels needed for executive, administrative, and professional workers to be exempt. Specifically, the Final Rule does the following:
The details of the Final Rule can be found at https://www.dol.gov/whd/overtime/final2016. Additional guidance for private employers can be found at https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf.
California has its own set of overtime regulations which are more stringent than federal law. The table below features a recap of the differences between California law and the Final Rule from the Department of Labor.
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This is a brief summary of the new rules. We welcome your questions on how to comply with the new regulations.