A new report from the Associated Press outlines some of the federal tax changes small business owners should be aware of as they begin filing their annual returns.
Take a moment to review a few of the tax changes for popular deductions now to ensure your business is on track to file accurately. For specific tax questions, Hardware Retailing recommends reaching out to a local tax professional who can give guidance on your business’s specific circumstances.
Businesses are now limited on how much interest they can deduct on their loans and credit lines, according to the report.
Small businesses with less than $25 million in average annual revenue over the past three years are not limited on interest deductions. Current IRS rules stipulate businesses above that average annual revenue are limited to a 30 percent deduction “of a company’s adjusted taxable income plus its interest income, if it has any,” according to the article.
Under new tax guidelines, business owners who treat partners to recreational activities like golf outings or trips to sporting events are responsible for those expenses, the article states.
“But owners can still deduct the cost of taking a client out for breakfast, lunch or dinner; half the amount spent for a business meal is deductible,” the article states.
The IRS issued guidance about these kinds of entertainment deductions in October. Using a trip to a baseball game as an example, the IRS stated, “The food is deductible; the tickets are not.”
However, retailers should note that they can deduct 100 percent of food costs “for parties or picnics for employees,” the article states.
New guidance eliminates previous deductions business owners could take for subsidizing employee transportation expenditures, according to the article.
Especially in urban areas, some retailers have used transportation subsidies as a benefit to attract employees. Leon Dutkiewicz, a CPA with Citrin Cooperman in Philadelphia, suggests in the article that retailers consider covering these costs themselves.
“When you run the math, you’re going to lose more in goodwill than you would from losing the deduction,” he says.
Net Operating Losses
Businesses that operate at a loss will no longer be able to “‘carry back’ their losses to offset earnings in previous years and get refunds on taxes they paid,” the article states.
Notably, current tax law does enable companies to carry losses forward in upcoming years, which can help them reduce taxes during profitable times, according to the report. This tax alteration is especially important for business owners who operate in industries with seasonal highs and lows, including retailers.
“It’s a bigger deal for cyclical-type businesses that will make money one year, lose money the next,” says Ken Rubin, a CPA with Rubin Brown in St. Louis, in the article.