New Small Business Legislation Benefits Both Businesses and Individuals
The Tax Cut and Jobs Act of 2017 offers additional tax breaks for both business owners and individual taxpayers.
Key Takeaways
- Under the Tax Cut and Jobs Act of 2017, bonus depreciation has been changed for qualified assets acquired and placed in service after September 27, 2017, allowing for a bonus 60% "expensing" of assets that are new or used (tax year 2024).
- The General Business Credit has been enhanced, allowing taxpayers to carry the excess back for one year and forward for 20 years.
- Employer-provided cell phones are no longer considered to be “listed” property, eliminating the need for extra documentation requirements.
- Businesses are allowed to deduct up to $10,000 of business start-up costs, double the previous $5,000 limit.
Changes for Businesses
Increased Section 179 Expense Limits
Section 179 allows you to deduct the cost of qualified business equipment in the year you place it into service, instead of depreciating it over several years. For 2024, Section 179 deductions are limited to $1,220,000, with a phaseout that starts if your purchases for the year are more than $3,050,000 million.
The definition of expenses that could potentially qualify for Section 179 treatment has expanded over the years to include leasehold improvements and improvements to restaurant and retail property.
Bonus Depreciation
Bonus depreciation has been changed for qualified assets acquired and placed in service after September 27, 2017. The old rules of 50% bonus depreciation still apply for qualified assets acquired before September 28, 2017. These assets had to be purchased new, not used. The new rules allow for 100% bonus "expensing" of assets that are new or used. The percentage of bonus depreciation phases down in 2023 to 80%, 2024 to 60%, 2025 to 40%, and 2026 to 20%. After 2026 there is no further bonus depreciation. This bonus "expensing" should not be confused with expensing under Code Section 179 which has entirely separate rules, see above.
The 100% expensing is also available for certain productions (qualified film, television, and live staged performances) and certain fruit or nuts planted or grafted after September 27, 2017.
Taxpayers can make an election to opt out of the new bonus depreciation rules and use 50% bonus first year depreciation per the prior rules for the first tax year ending after September 27, 2017.
General Business Credit Enhanced
This credit includes numerous separate business-related tax credits that are combined to calculate an overall limit based on your tax liability. Previously, if the credit you were eligible for exceeded the limit, you could carry the excess back for one year. If you still had a credit remaining, you could carry it forward 20 years.
TurboTax Tip:
If you acquire certain small business stock and hold the stock for five years, you can exclude 100 percent of any gains from regular and alternative minimum tax calculations.
Cell Phones No Longer Considered Listed Property
Beginning in 2010, employer-provided cell phones are no longer considered to be “listed” property. That means small businesses can deduct cell phone use without the burdensome extra documentation requirements that applied in previous years.
Deductions for Business Start-Up Expenses
For tax years beginning in 2010, businesses are allowed to deduct up to $10,000 of business start-up costs--that’s double the previous $5,000 limit. The deduction starts to phase out if your expenditures exceed $60,000. You can deduct any start-up costs that are not immediately deductible over 15 years.
Changes for Individual Taxpayers
Exclusion Increased for Sale of Small Business Stock
Individuals have seen increases in the capital-gains tax exclusion on sales of qualified small-business investments. If you acquire certain small business stock and hold the stock for five years, you can exclude 100 percent of any gains from regular and alternative minimum tax calculations. This exclusion has been made permanent.
Expanded Roth Retirement Plan Availability
If you are a government employee who participates in a 457(b) retirement savings plan, starting in 2011, these plans now may allow you to make Roth (after-tax) contributions. There’s also greater flexibility for rollovers to Roth plans. Starting immediately, 401(k) plans, 403(b) plans and 457(b) plans may allow their participants to roll over pre-tax savings directly to Roth accounts. The rollover amount will be included in your taxable gross income.
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