Are my business expense deductions changing because of Tax Reform?
Yes. There are some changes to self-employed business expense deductions, including:
Assets - Self-employed businesses can deduct more of their business assets (also known as Section 179 deductions), which are usually large purchases, like equipment, computers, and office furniture. The amount you can deduct is increasing from $510,000 to $1,000,000. This type of deduction is more common for business that have a lot of large equipment and large profits.
More about Section 179 deductions - Under Section 179 of the Internal Revenue Code, a business can expense up to $1,000,000 of the cost of qualified business property and the phase-out threshold is increased to $2.5 million. Keep in mind, the maximum allowance is still limited to the amount of income from business activity.
Vehicle - Passenger vehicles placed in service for businesses after December 31, 2017, will see an increase in the maximum allowable depreciation expense. Vehicles that were placed in service before 2018 will not qualify for this change – this only applies to vehicles placed in service in 2018 or later.
Here are the maximum allowable deductions (without bonus depreciation):
$10,000 for the year placed in service
$16,000 for year 2
$9,600 for year 3
Meals and entertainment expenses:
Entertainment - You won’t be able to expense entertainment that is directly related to, or associated with, the conduct of your business. This includes membership dues for any club organized for business, pleasure, recreation, or other social purposes.
Meals - Taxpayers are still generally able to deduct 50% of the food and beverage expenses associated with operating their trade or business.