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At the end of the tax year, what are business owners thinking about? Saving money on taxes, reducing taxes, and wondering about the impacts for 2018, especially with recent tax reform. We're thinking about that too, which is why we wanted to share the tips that we found, to help you in your business too.  

Changes for 2018... 

As you are wrapping up your adjusted income for 2017, you will want to capture the same basic business expenses and income data for 2018 and beyond. What's different is a new term, qualified business income (QBI). The QBI is a method of capturing up to a 20% business deduction from your business income. There are some limitations on this based upon income tiers, W-2 income paid, capital, and the type of business, however in general, this will allow a taxpayer deduction for business income, as reported on their personal income tax return. While the revised corporate tax rate is 21%, the pass-through to individuals and income attributable to a sole proprietor will be taxed at the individual rate less a deduction up to 20% to bring the effective rate lower. This rate change is an enduring change to the tax code, not a temporary reduction, like the individual rate changes. 

Certain types of service-based businesses will realize a new cap in the threshold of their benefit from the QBI deduction, limited to a net business income of $157,500 for individuals, and $315,000 for married filing joint returns. These specific service or trade businesses include fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of the business is the reputation or skill of one or more of its employees or owners. There is a phase-in range for 2018 that allows a net business income up to $207,500 for individuals, and $415,000 for married filing joint returns; individuals with income beyond these limits lose the deduction completely. 

Another permanent change in the tax package is to index tax rates to the CPI-U, or urban version of the Consumer Price Index. While the tax code was annually adjusted for inflation previously, the CPI-U is viewed as a reliable index for such adjustments into the future. This may also help to create adjustments that are tied to global economic changes. 

Individual Tax Reform changes include an increase in the standard deductions, with a married filing joint return  increase to $24,000, head of household at $18,000, and all other filers at $12,000. Personal exemptions are gone as of 1/1/18. Several other key changes are noted below:

  • Enhancement of child tax credit and new family tax credit
  • Repeal of the credit for plug-in electric drive vehicles
  • Termination of credit for interest on certain home mortgages
  • Limitation on losses for taxpayers other than corporations
  • Suspends all miscellaneous itemized deductions subject to the 2% floor
  • Raises the threshold for medical expense deductions to 7.5% through 1/1/19
  • Repeals the limitation on itemized deductions (income-limited)
  • Removes the individual mandate for qualified health care insurance coverage

Here's what you can still do today...

So, most business deductions are still available in 2018, as limited by business income. The QBI formula may provide a benefit to individuals with income from partnerships, corporations, and sole proprietorships within certain income limitations. Several other tuition and educational expense adjustments were not supported in the final compromise version, which is good news.

What can you do today to optimize your tax savings for 2018 and beyond? Here are some key tactics:

  • Accurately track and manage business expenses through an accounting software program (Quickbooks, ZohoBooks, Xero)
  • Obtain receipts for all charitable contributions, whether in-kind, cash or as non-cash donations
  • Confer with your tax adviser for updated withholding requirements, as applicable
  • Recognize that miscellaneous itemized deductions and other deductions will have changes; some expenses can be modified for better tax treatment 

Related: Four Easy Tips to Avoiding Tax Headaches

See your personal or business tax adviser for specific guidance in your situation. Here's the final full version of  the final Tax Cut & Jobs Act, for your review, if desired.

For more better protection and savings for your business, download our white paper on the legal issues that businesses often overlook, that can cost thousands! 


Dawn Garcia is Principal and Founder of Pursuit of Excellence LLC, an independent business management consulting firm specializing in service-based businesses; delivering leadership, strategy and execution expertise. Experience the Excellence Driven® System for your business, and achieve the results you need and want! Every business needs help at some point. The secret to success it to get the right help, when you need it! 

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