Unless you’ve been sleeping under a rock the last year, you probably know that the Tax Cut and Jobs Act really changed how deductions work. Here’s the thing, if you’ve yet to file your 2018 taxes, you might not realize just how much those changes will affect you and your business this year.
While there are some new tax breaks, including 20% reductions for sole proprietors, partners, and owners of S corporations, there’s a lot to unpack with the deductions that are going away. Here’s a quick rundown of what you’ll need to know in the thick of this tax season -- and how this will affect your bottom line in 2019 and beyond.
Taxes 101: Interest Deductions for Medium-sized Businesses Are Down
If you run a small business that has made less than $25 million in revenue over the previous three years, then this won’t change -- you still can deduct interest on loans and credit lines. There’s no ceiling on the interest you can deduct.
On the other hand, if you have a business that’s made more than $25 million in the last three years, IRS regulations now limit the deduction to 30% of your company’s adjusted taxable income PLUS its interest income (if that applies). The good news (besides the fact that you have over $25 million in revenue over three years -- go you), is that interest expenses above that limit can be carried over and deducted the next year. It just will count toward that year’s ceiling too.
If you're not sure how the tax code will be affecting your company, talk to an expert.