Year End Tax Reminders: Part I

Year End Tax Reminders: Part I

Tax Reform Changes are Still Here 
As we noted numerous times, there hasn’t been any changes to the tax reform laws that went into effect last year. However, one of the most often asked questions is if the tax reform changes still apply, and for how long? The answer is yes, the changes brought about by tax reform are still in play and will be around until 2025. 

The following is a reminder of the tax breaks available to small business persons in year two of tax reform implementation.

Bonus Depreciation
Thanks to tax reform there is no maximum limit on using bonus depreciation to write-off the cost of business equipment purchases, new or used. To say that differently, bonus depreciation is 100% of the cost of business equipment purchases.

A little history lesson: you will recall that the old rules capped the write-off at 50% of the cost and didn’t apply to used equipment purchases.

What about Real Property Improvements?
Remember the old Sec. 179 expensing concept? Thank goodness it’s still around because real property enhancements can’t be deducted using  bonus depreciation, but can be written off using Sec. 179, which was increased from $500,000 to $1,000,000 under tax reform. 

Auto Write-Offs
Business cars and light-duty trucks (luxury autos) can also use bonus depreciation. If a taxpayer claims 100 percent bonus depreciation on a 2019 purchase, the allowable depreciation deductions are:

•  $18,100 for the first year,
•  $16,100 for the second year,
•  $9,700 for the third year, and
•  $5,760 for each year after.

The entire cost of business purpose SUVs and trucks with a gross vehicle weight over 6,000 lbs can be 100% deducted using bonus depreciation.

Small Business Deduction
Outside of unlimited expensing with bonus depreciation, this was the biggest tax break included in the tax reform. This deduction is still in play in 2019 and allows a 20% tax break on the personal return of small business persons operating pass-through businesses such as S Corps, limited liability companies and sole proprietorships. The deduction is based on the net income of the business operations.

2019 Gifting Amounts
The annual per-person gift tax exclusion in 2019 is $15,000. It will remain at this level in 2020 as well. You can “gift-split” with your spouse which doubles the exclusion amount to $30,000 per person, per year. 

What if you gift over the limit? The amount over the annual per-person limit reduces the lifetime maximum of $11 million that you can give to others via gift or inheritance. There is no penalty for exceeding the annual gifting limit, and there is no tax on the receiver of the gift.

Tax Rate on Capital Gains
As much as this tax break has been talked about in Congress as an item for change, it’s status quo for 2019. There are still three rates, 20% for those with adjusted gross income over $488,850, 0% for AGI under $78,750, 15% for everyone else. These rates only apply if you’ve owned the holdings more than a year. Ownership of less than twelve months will move the gain into the higher, regular tax rates.