By Ron Kustek, Business Instructor Cabrillo College
Before we begin, it is recommended to consult with your tax accountant who specializes in business tax laws so that you are able to take full advantage of the bevy of changes afforded businesses by the recent tax law changes.
Overall, in contrast to the very few and minor tax breaks for individuals which expire on December 31, 2025, the business breaks and provisions generally will not expire, unless there are further changes to the tax laws.
Corporations
But don’t think corporate taxes increased — the ‘flat corporate tax rate’ of 21% is before deductions.
Depreciation of Purchasing Used Equipment
No Entertainment Expenses
Before panic sets in, the only ‘entertainment’ expenses allowed under the new corporate tax law, apply to the 50% limitation for expenses on food and beverages that an employer pays for providing employees an eating facility that meets the minimum requirements for consideration as fringe benefits for the convenience of the employer.
So, if you subsidize and provide a free cafeteria for the benefit of your employees, you are able to still deduct the same 50% of the expenses for that employee cafeteria. However, this is one of the few corporate tax changes that ‘expire’ on December 31, 2025.
The most important part to know is that entertainment expenses associated with or “directly related to the active trade or business” are no longer allowed as deductions. This includes concert or theater tickets, tickets to sporting events, golf outings, club expenses or dues for important clients, etc. These are all no longer deductible.
Limitation on Business Interest
The new tax law limits the net interest expense deduction to 30% of a business’ adjusted taxable income. However, the definition of a “Small Business” is defined as a business with average gross receipts of $25 million or less. So, if you’re making more than $25 million in 2018 and beyond, it is very likely that you already have a trusted accountant who knows the details of the deductible amount of the interest expense from your loans, lines of credit or other financing.
So, there you have it. As we said at the outset, “It’s Complicated” as any relationship — whether taxing or not — can often be. Again, for the full benefits explained and/or to be in full compliance with the new tax laws, it is recommended that you work with a well-educated accountant to process your taxes, so that you legally pay the amount that is owed.
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Ron Kustek is a Business Instructor at Cabrillo College who teaches • Marketing • Starting & Operating A New Small Business • Introduction To Business. If you have any comments or questions for Ron email: info@cyber-times.com Subject “Ron Kustek”