How the Trump Tax Plan May Affect You and Your Business
The new Trump tax plan makes significant changes to some tax deduction categories. These changes can both affect small business owners as well as impact personal tax returns. Below, we discuss the changes and how your 2018 decisions may be affected.
Business Owner Meals and Entertainment
The Trump tax plan makes some significant changes to what deductions business owners can take. The new changes allow for deduction of meals, but eliminates the entertainment allowable expense. This may change how companies and small business owners treat clients. For example, if you take a client to a football game, you can now only deduct the food, but not the ticket cost.
Business Motor Vehicle Deduction
There are some major changes to the motor vehicle deduction. The changes provide for a larger deduction in depreciation for motor vehicles used for business. Under the Trump tax plan, you can now take up to an $18,000 deduction for a new car in the first year it is owned. If you purchase a SUV or truck, the motor vehicle is now 100% deductible. This change may encourage more business owners to purchase new motor vehicles rather than leasing.
Deductions for Mortgage Interest and Property Taxes
Some changes may affect your ability to deduct portions of your mortgage or property taxes. Under the Trump tax plan, you can still deduct your mortgage interest. However, the new rules eliminate your ability to claim a deduction for interest on HELOCs (home equity lines of credit).
For new home buyers, the mortgage interest deduction remains unchanged. For homeowners that purchase a home over $750,000, the deductions will be limited.
Further changes under the Trump tax plan put a cap on the total combined deduction allowed for property tax deductions and state income taxes, combined. The limit for these two categories is now $10,000.
The new changes to deductions related to mortgage interest and property tax may make you think twice about buying a house, or the value of the house you buy.
Changes in Deductions for Alimony Payments
Deductions for alimony will face major changes in near future. In prior tax years, alimony was deductible for both the paying and receiving spouse. For the 2018 tax year, alimony is still deductible, but only if your divorce if finalized before December 31, 2018. Ironically, this is the only provision of the new tax bill that has a delay in effective date.
However, for those that get divorced in 2019, or later, alimony will no longer be deductible. As a result, if you are planning on getting a divorce in the near future and will have to pay alimony make sure your divorce is final before the end of 2018. If you will potentially receive alimony, you might want to delay until 2019.
Medical Expense Deductions
The Trump tax plan increases the allowable deductions for medical expenses. In both 2017 and 2018, you may deduct medical expenses if the expenses are greater than 7.5 percent of your Adjusted Gross Income (AGI). In 2019, the percentage increases to 10 percent.
Understand How the Trump Tax Plan Works
If you are a small business owner or entrepreneur, you need to educate yourself about how the tax law changes might affect your deductions and overall taxable income. You can benefit from discussing your situation with a business lawyer who is familiar with the new Trump tax plan. Learning about the changes, deductions, and your situation sooner than later enables you to make timely changes, if necessary.
Contact a Business Lawyer to Learn More About How the Tax Plan Could Affect Your Small Business
The Trump tax plan makes significant changes to personal and business deductions. Contact the Strong Law Firm today for more information about how tax changes could affect your business in the coming years.