As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists businesses with representation in tax examinations, audits, appeals, and civil litigation with the Internal Revenue Service (the “IRS”) and the Ohio Department of Taxation. As part of that representation, our tax attorneys advise businesses of the effects of new and emerging changes to federal tax law. The Tax Cuts and Jobs Act (“TCJA”) that was passed in December 2017, is the most recent and substantial change in federal tax law, and will affect how nearly all businesses file their 2018 tax returns.
The Tax Cuts and Jobs Act to Affect Small Businesses
On October 9, 2018, the IRS published a news release urging small business owners to familiarize themselves with the new tax changes as a result of the TCJA before the end of the year. IR-2018-197. According to the IRS, the TCJA will affect almost all business owners when it comes to tax rates, quarterly estimated tax payments, and allowed deductions and credits. The IRS indicated that it will continue to provide resources to help ensure small businesses and self-employed taxpayers meet their tax responsibilities. The IRS, however, has already provided taxpayers with significant guidance regarding the TCJA on its website. The amount of information and awareness being provided by the IRS should be a signal to taxpayers that come time to file their tax returns, the IRS will expect businesses to be knowledgeable of their tax obligations.
How Will the TCJA Affect the Bottom Line?
As a follow-up to the October 9, 2018 publication, the IRS issued yet another news publication that provided guidance to businesses on the effects of the TCJA. On October 16, 2018, the IRS offered several examples on how the TCJA may affect the bottom line of many businesses. IR-2018-203. The IRS provided the following examples:
1. The Qualified Business Income Deduction. Under IRC §199A, sole proprietors, partnerships, trusts and S corporations may now deduct 20 percent of their qualified business income.
2. The 100 Percent Depreciation Deduction. The TCJA made several amendments to the allowance for additional first year depreciation deductions in IRC §168(k)—such as increasing the additional first year depreciation deduction percentage from 50% to 100%—for qualified property placed in service after September 27, 2017, and before January 1, 2027.
3. Fringe Benefits. The TCJA has changed what business may deduct for certain fringe benefit expenses. This includes business expenses for things such as, meals and entertainment, transportation, moving, and employee achievement awards. For example, before the TCJA, IRC §274(n)(2) allowed businesses a 100% deduction for de minimis meal expenses, however, the TCJA modified the statute to only allow a 50% deduction for de minimis meal expenses. The TCJA takes it a step further for deductions related to entertainment expenses, by eliminating business deductions for entertainment expenses altogether, regardless if the expense is directly related to, or associated with the business. IRC §274(a). For more information on deducting certain fringe benefits such as, transportation, lodging, and meal expenses, see our previous blog article.
4. Estimated Taxes. Due to the numerous changes to the Internal Revenue Code (the “IRC”), the IRS suggests that individuals, including sole proprietors, partners, and S corporation shareholders, consider paying quarterly installments of estimated tax—unless the taxpayer owes less than $1,000 when they file their tax returns or if they had no liability in the prior year. IR-2018-203. According to the IRS, the number of taxpayers who are subject to penalties for underpayment of taxes, continues to increase. For example, the IRS saw a 40% increase in penalties between 2010 and 2015.
This list serves only as an example of the types of changes the TCJA has made to the IRC. Before filing their 2018 taxes, businesses are responsible for doing their due diligence to understand how the TCJA may affect their particular business. Because the TCJA is long, nuanced, and is affecting taxpayers for the first time, it is important to seek guidance from a legal professional.
Contact Nardone Limited
Nardone Limited represents employers with federal tax issues, including changes as a result of the TCJA. If you are unsure how the TCJA will affect your business, you should contact an experienced tax attorney before filing your taxes. Nardone Limited’s tax attorneys and professionals are well experienced with representing businesses regarding federal tax issues. Contact us today for a consultation to discuss your case.