Looking for some ways the new tax reform will affect your finances. Read on to learn more.

The New Tax Reform and Your Finances

Now that 2019 is behind us, millions of American taxpayers are waiting to file their income tax returns in the new year. Since Congress signed into law a tax reform in December 2017, it affected individuals and entrepreneurs. It impacts small and mid-sized businesses, sole proprietors, corporations, partnerships and s-corporations relating to deductions and depreciation. The Tax Cuts and Jobs Act or the 2017 Tax Reform Legislation impacts your tax liability with a variety of changes. Because of this, there are seven things you must know about your finances and tax liabilities.

Some people overlook expenses deductible for the use of conducting business from their home office. Mileage for business, medical, or charitable purposes is one deduction they forget to claim. The current IRS mileage rate for business expenses is 58 cents per mile, a 3.5 rate increase compared to 2018. Taxpayers avoid the deduction because they don’t have receipts or logs of mileages used for business. Now that it is the beginning of a new year, purchase a mileage log book and download a financial app to track all your business expenses.

Seven Things to Know About Your Finances as a Business Owner

• The Internal Revenue Service eliminated deductible moving expenses for all taxpayers, except for active US military members. Business owners can not deduct moving expenses for moving an employee from one city or state to another. While it was deductible up to a certain percentage prior to 2017, it no longer exists.
• Sole proprietors and companies cannot deduct expenses for entertainment, amusement, and recreation to reduce their taxable earned income. The IRS made an exception for meals as long as drinks and food are not lavishing and expensive.
• Employers and business owners can only purchase meals and drinks for their clients, prospective customers, and consultants. The taxpayer providing the meal may deduct fifty percent for the cost of meals.
• The IRS allows you to calculate your mileage of vehicle use by using cost or the IRS standard mileage rates. Each year the rate may change with an increase or a decrease. For example, in 2015 the rate was at 57.5 cents and dropped by 3.5 cents to 54 cents in 2016. In 2019, the rate is the highest it has ever been.
• Reduce tax liability with a strategic financial plan by joining tax protection programs, such as an IRA or a traditional Roth. If you are an employee, consider joining your employer’s 401K plan. Corporations and partnership can start a 401K program for their employees which reduces their tax liabilities.
• You can continue to write off your home office space used to operate your business up to a specific percentage.
• Your limit of vehicles for mileage deduction is four. If you operate more than four vehicles, including cars, trucks, and vans, you must calculate the actual costs and have supporting documents.

How the TCJA Impacts You as a Business Owner

If you started a company last year and earned revenue, the Tax Cuts and Jobs Act (TCJA) say you may be eligible for a qualified business income deduction. You can deduct up to twenty percent of your income and an additional twenty percent for the aggregate amount of qualified earnings. It also includes any real estate investment trust dividends. You can use the mileage rate or claim depreciation. The IRS doesn’t allow you to use both.

When claiming depreciation, the allowable depreciation for the first year is $10,000, and $16,000 in the second year. The third year it drops to $9,600 and thereafter to $5,760. Vehicles placed in service after December 2017, the maximum standard cost is $50,000, including trucks, vans, and cars. For an automobile, the max standard cost is $27,000 and for trucks and vans, the max cost is $31,000.

Whether you are a business owner or an employee, the new tax reform has its advantages and disadvantages to your finances. If you work full time and own a business, seek advice from a financial adviser, CPA, or a tax expert. Make sure you have a logbook with all your mileages documented and the original receipts for repairs, gas, insurance, and other expenses. The new tax law is complex and requires professional expertise and planning.