I do hope you have found something of value in these posts.
This is our last one on tax reform changes.
Cash Method of Accounting
I admit this topic relates to a smaller portion of business owners, but it deserves a quick mention.
Before, a business that does more than $5 million in revenue would need to file their taxes on the “accrual” method.
After, now its businesses with more than $25 million are required to file an “accrual” method. Which means, if you are under $25 million in revenue you can still use the “cash” method.
Before, you needed to account for your inventories in such a way that didn’t give you a tax deduction for buying the inventory, you only got the tax deduction when you sold the inventory item. (This is a very simplified statement, but it gets the idea across.)
After, if your business does less than $25 million in revenue, you can get a tax deduction when you buy your inventory.
Most of our clients are less than $25 million in revenue, so this inventory change is good news. Many business owners have already been operating under the assumption that they could expense their inventory purchases. We know this because when they give us their yearly financials to prepare their tax returns, their inventory balance shown on their financials is the same number it has been for the last 5 years. So this new change just makes it so that the business owner can keep expensing their inventory purchases, but now they are following the tax code.
Local Lobbying Expenses
Before, you were allowed to deduct expenses paid for lobbying to a local government body, or with an Indian tribe.
After, this is no longer allowed.
I wanted to throw this obscure one in our summary because sometimes people don’t believe me when I tell them that the reason the tax code is so long and complicated is because of special interest groups paying politicians or lobbyists to get some tax rule passed for them. This change will make those attempts a little less appealing. It certainly won’t stop it and more than likely isn’t even going to slow down the amount of lobbying that goes on. But at least as taxpayers we don’t have to give these big companies tax benefits for getting special tax treatments.
Domestic Production Activities Deduction
Before, if your business qualified, you could take a 9% deduction of income that fell into the category of domestic production activities.
After, gone, gone gone.
This is a bummer for those that were getting the benefit of this fun deduction. Other than that, we just have to move on with our life at some point I guess.
If you have ownership in a life insurance company…there were a lot of rule changes you should make yourself aware of. We aren’t going to cover those changes here though.
Also there were quite a few changes to the beer and wine industry. Some politician is sitting at home with free beer and wine for life. At least that is my guess based on these random law changes to beer brewers and beer importers.
Estate and Gift Taxes
Before, if an estate at the date of death was $5 million or less, it is excluded from paying estate and gift taxes.
After, the exclusion amount is now $10 million.
This new change makes it so that virtually all by the 1% will have to ever pay estate taxes. And guess what, the 1% already figured out how to get around the estate tax rules anyway. So this whole area of the tax code seems pretty pointless now.