In honor of National Small Business Week, celebrated from May 5 through 11 this year, the Internal Revenue Service issued a press release highlighting the many tax benefits available to small business owners and investors. While some of these credits, deductions, and offsets have been available to small businesses for years, others were only recently put into play with the Tax Cuts and Jobs Act of 2017 (TCJA).
The 20 Percent Qualified Business Income Deduction
For businesses that are incorporated as sole proprietorships, partnerships, S-Corps, trusts, and estates, a qualified business income deduction (or "Section 199A deduction") may be available. Eligible businesses may deduct up to 20 percent of all qualified business income, qualified real estate investment trust dividends, and/or qualified publicly traded partnership income for tax years beginning January 1, 2018.
The Business Loss Deduction
Since the passage of the TCJA, business or trade losses are capped at $250,000 for an individual tax return or $500,000 for a joint tax return. This cap encompasses losses reported on Schedules C, E, and F. And after December 31, 2017, businesses and sole proprietors with a net operating loss deduction are capped at taking a deduction of up to 80 percent of the taxpayer's taxable income.
The General Business Credit
In the U.S. Tax Code, there are more than 20 tax credits that cover a wide range of business types and activities. If a taxpayer qualifies for one of these general business credits but can't use it in a particular year for whatever reason, they may be able to carry them back (or forward) to a year in which they can take advantage of these credits.
The Paid Family and Medical Leave Credit
Under the TCJA, employers that pay employees for leave taken under the Family and Medical Leave Act (FMLA) may be able to receive a credit for these wages paid. To qualify, the employer must:
- Have a written FMLA payment policy in place;
- Provide at least two weeks of paid leave to all full-time employees earning under $72,000 during the prior tax year; and
- Provide payment of at least 50 percent of the eligible employee's wages.
These are but just a few of the credits and deductions available to small business owners for the 2019 tax year. As the TCJA continues to evolve, look for more tweaks to the benefits the Tax Code offers.