For the past few years, the IRS has worked to implement the new regulations that have come from the Tax Cuts and Jobs Act. This article will tell you some of the top tax code changes that will change your business tax return in 2018.
Deductions for Hobbies
If you don't have hobby expenses that qualify as cost of sales, then they are not deductible. Before, you had to itemize all of your personal deductions to take the hobby deductions. You can no longer do this. If you have a money-losing hobby, you will need to turn it into a business. In order for the IRS to recognize your hobby as a business, you will need to make more than you spend for three out of the last five years. This is called having a "profit motive."
State Tax Deduction
On Schedule A, state tax deductions have now been capped at $10,000. Before, if you had enough deductions to exceed your standard deduction. you could report the itemized deductions through Schedule A. One deduction was for the state income taxes you paid, as well as state taxes and property taxes. You could have deducted everything you paid, with no cap at all.
Starting in 2018, this deduction gets capped at the amount of $10,000. This can disproportionately affect high-income earners and those business owners that live in states with really high property taxes.
Starting in 2019, alimony will become tax-free to the recipient. The payor can no longer get deductions from the alimony they pay. If you're about to go through a divorce and will likely receive alimony payments, you will be much better off doing it now than you would have been before the start of the year.
You'll first notice these and other changes when you file your 2018 taxes in 2019. A lot more regulations got passed with the recent tax reform bill. To get the best idea of how your business will be affected, you may want to contact one of the CPA firms in Las Vegas.