The massive spending measure (December tax package), Further Consolidated Appropriations Act, 2020 (H.R. 1865), which was signed into law on December 20, 2019, makes an estimated $426 billion in tax cuts. Some of these tax cuts relate to 2018, for which returns have already been filed. Some relate to 2019, which will come into play when returns for this year are filed in the 2020 tax season. And some don’t kick in until 2020 or beyond.
Here is a roundup of some of the key business-related tax changes in the new spending measure to note:
Reinstatement of expired provisions
A slew of tax rules expired at the end of 2017. The following tax breaks have been extended retroactively to 2018 as well as for 2019 and 2020:
- Favorable write-offs for certain racehorses, motorsports complexes, and certain film, television, and live theatrical productions
- Empowerment zone incentives
- Energy-related incentives, which include various tax credits and the deduction for energy efficient commercial buildings
The incentives for biodiesel and renewable diesel fuels, which had expired at the end of 2017, have been extended through 2022.
Note: All of these and other extender provisions are explained in detail in my book J.K. Lasser’s Small Business Taxes 2020 and will be included in the online Supplement to the book that posts in February.
Extension of expiring provisions
Certain tax credits that were set to expire at the end of 2019 have been given another year of life:
- Work opportunity credit
- Paid family and medical leave credit
- New markets credit
Retirement plan changes
Numerous changes to the rules for qualified retirement plans have been enacted. Some take effect in 2020, while others don’t begin until 2021. The changes will be discussed in more detail in an upcoming blog. But here are 3 key changes for small businesses to note:
- New retirement plan option. Multiple employer plans (MEPs) allow small businesses to go into a pool headed up by a designated pooled plan provider who acts as the plan fiduciary. This option will cut costs and minimize fiduciary responsibilities for small employers that want to offer their employees a retirement plan. This won’t start until after 2020 to give time to the IRS and DOL to provide guidance.
- Increased tax credit for starting a qualified retirement plan. If you have no more than 100 employees who earned at least $5,000 from you in the preceding year and you don’t yet have a plan in place (and the plan covers at least one non-highly compensated employee), you can take a tax credit to cover the administrative costs of starting a plan and educating employees about it. For 2019, the credit is capped at 50% of costs for a top credit of $500; it can be used for up to 3 years. But next year, the credit is the greater of $500 or the lesser of (1) $250 per employee who is not highly compensated and who is eligible to participate, or (2) $5,000.
- New tax credit for automatically enrolling participants in your plan. This is a credit is up to $500 per year for startup costs for a new 401(k) plan or SIMPLE IRA with automatic enrollment. The credit can also be claimed by employers with existing plans that convert to automatic enrollment. This credit is in addition to the credit above; it too runs for up to 3 years.
The new law does not make a technical correction to an error in the Tax Cuts and Jobs Act relating to qualified improvement property. So, while that prior law had intended such property to have a 15-year recovery period, it continues to have a 39-year recovery period…until Congress fixes it.
Your best course of action is to discuss the new tax rules with your CPA or other tax advisor to see which may apply to your business. If any of those extenders apply to you, weigh the cost in accounting fees involved in filing an amended return for 2018 against the tax savings; it may not be worth it. Will the IRS provide some simple procedure for amending these returns? Who knows?