Small business owners seek info on new tax law

Pass-through deduction a key seminar topic

HAMPTON — Local small business owners had plenty of questions about how the new tax laws in place this year will affect them Thursday during a seminar hosted by Old Point National Bank in downtown Hampton.

President Donald Trump signed the Tax Cuts and Jobs Act into law last December, the biggest tax overhaul since 1986.

A repeated question at the seminar: Who gets a new 20 percent deduction for qualified business income of pass-through entities like partnerships or sole proprietorships, where the owners are taxed individually on the income.

On the surface, the deduction sounds great, but there are special rules and limitations, depending on individual income levels and types of business activity, a certified public accountant told at- tendees.

The actual deduction could be lower as it’s limited at certain income thresholds and by wages paid, according to Ashley White of A.J. White & Associates in Newport News. Certain service businesses where income exceeds $157,500 individually or $315,000 married filing jointly would not get the deduction, she said. Proposed IRS rules released in August say that real estate agents or brokers would not be in the “specified service business” category. The deduction doesn’t come into play if the business is operating at a loss, she said.

Another change was that businesses can no longer write off entertainment expenses, although taxpayers can continue to deduct 50 percent of the cost of business meals, White said. Businesses can’t write off local lobbying expenses, she said.

Businesses can temporarily expense 100 percent the cost of certain business equipment or vehicles put in service between Sept. 27, 2017 and Jan. 1, 2023. Unfortunately for employees, if a company pays for moving expenses, that’s now included in the worker’s wages as taxable income, White said. Businesses can still write off gifts to employees as a payroll expense, but now the value of the gifts are included in employees’ taxable income, she said.

Vacation rental homes owner Philip Siff of Hampton and CEO and master distiller Skyler Pittman of Copper and Oak Craft Spirits in Portsmouth both wondered if their business activity would qualify for the 20 percent deduction.

White told Siff real estate can qualify, and the military retiree said knowing that helps him be more comfortable as he invests in vacation rentals in the future. He rents out two homes in the Outer Banks and one in the Blue Ridge Mountains.

Pittman learned his distillery and tasting room would be more in the manufacturing category instead of service.

“The more informed we are and the more we know things, the better decisions we can make going forward,” Pittman said.