Almost every year holds tax changes, but the changes for the 2018 tax year and beyond can mean some significant savings for your business. Small business owners, and specifically S-corps, have a lot to gain from the most recent tax legislation under the Tax Cuts and Jobs Act of 2017. Take advantage of these key tax changes in 2018 so you don’t miss out.
Tax Filing Deadline
The 2017 tax year ends on December 31, 2017 for most businesses including S-corps, just like it does for your personal taxes. But the deadline to file taxes differs. S-corps need to file taxes by the March 15, 2018 deadline, or file a six-month extension. If you file for the extension, you’ll have until September 15, 2018 to file taxes.
Blanket Tax Reduction of 20 Percent
In order to give small businesses some breathing room to expand, a bill was signed into law that reduces taxable income for all pass-through businesses. This blanket 20 percent reduction applies to S-corps, with the exception of doctors, lawyers and service-based businesses earning $315,000 or more per year. For all other applicable S-corps, the reduction means that your adjusted gross income can be reduced by a full 20 percent. This reduction will expire in 2025.
S-corps need to take advantage of every opportunity to compete with larger corporations. Equipment investment is one way to do that. Changes in Schedule C allow you to plan for investing in equipment by doubling the allowable expensing cap from $500,000 to $1 million. This applies to any equipment purchased after September 27, 2017. The cap for luxury vehicles has also been raised from $3,160 to $10,000 for the first-year limit. This applies to vehicles your business puts into service after December 31, 2017.
Depreciation has also been reinstated through 2019 for new equipment purchased during the 2015-2019 time frame. The standard depreciation had been set at 50 percent for 2015 through 2017, but has been reduced to 40 percent for 2018 and 2019.
You can claim and deduct mileage for business either by actual expense or by standard mileage rates. Depending on how much driving you do, the changes in mileage rates can be a big benefit to your business. If less than 50 percent of your driving is for business purposes, using the mileage rates may help reduce taxes. Mileage rates per mile change to:
- 53.5 cents for standard business miles
- 17 cents for medical or moving purposes
- 14 cents in service of charitable organizations
Social Security and Medicare Withholding
The maximum amount of wages that can be considered for Social Security withholding per employee has been increased to $127,200 for 2017. Medicare withholding is an additional 0.9 percent, but only for employment income at or above the following thresholds:
- $200,000 for filing as single, head of household or qualifying widow(er) with dependent child
- $125,000 if married filing separately
- $250,000 if married filing jointly
Additionally, the Work Opportunity Tax Credit (WOTC) is still in effect. What this means for S-corps is that hiring people from certain target demographics can reduce your tax liability. The tax credit ranges from $1,200 to $9,600 per employee and stays in effect through the 2019 tax year.
Stay tuned for more updates throughout the year.