Every year, it’s a sure bet that there will be changes to current tax law and this year is no different. From standard deductions to health savings accounts and tax rate schedules, here’s a checklist of tax changes to help you plan the year ahead.
Standard Mileage Rates
In 2020, the rate for business miles driven is 57.5 cents per mile, down one half of a cent from the rate for 2019.
Section 179 Expensing
In 2020, the Section 179 expense deduction increases to a maximum deduction of $1,040,000 of the first $2,590,000 of qualifying equipment placed in service during the current tax year. This amount is indexed to inflation for tax years after 2018. The deduction was enhanced under the TCJA to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems. Also of note is that costs associated with the purchase of any sport utility vehicle, treated as a Section 179 expense, cannot exceed $25,900.
Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years beyond.
Qualified Business Income Deduction
Eligible taxpayers are able to deduct up to 20 percent of certain business income from qualified domestic businesses, as well as certain dividends. To qualify for the deduction business income must not exceed a certain dollar amount. In 2020, these threshold amounts are $163,300 for single and head of household filers and $326,600 for married taxpayers filing joint returns.
Research & Development Tax Credit
Starting in 2018, businesses with less than $50 million in gross receipts can use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.
Work Opportunity Tax Credit (WOTC)
Extended through 2020, the Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.
Employee Health Insurance Expenses
For taxable years beginning in 2020, the dollar amount of average wages is $27,600 ($27,100 in 2019). This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.
Business Meals and Entertainment Expenses
The deduction remains at 50% for taxpayers who incur food and beverage expenses associated with operating a trade or business. For tax years 2018 through 2025, however, the 50% deduction expands to include expenses incurred for meals furnished to employees for the convenience of the employer. Amounts after 2025, however, will not be deductible. Office holiday parties remain 100% deductible and employee meals while on business travel also remain deductible at 50%. Also eliminated is the deduction for business entertainment expenses (only meals are deductible at 50%; receipts must identify and separate meal costs from entertainment costs).
Employer-provided Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees in 2020, the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $270. The monthly limitation for qualified parking is $270.
While this checklist outlines important tax changes for 2020, additional changes in tax law are likely to arise during the year ahead. Don’t hesitate to call if you have any questions or want to get a head start on tax planning for the year ahead.