Questions abound on how the new tax laws will impact each of us personally and as business owners, and we will be weeding through the information for you in the coming months. One of the bills, called the American Innovation Act of 2018 (HR6756), passed the House on September 27 and goes to the Senate for consideration next.
So, what is the American Innovation Act? The basic idea is to make it easier and cheaper to start a new business, encouraging entrepreneurs to create companies, hire employees and contribute to the economy.
How does this bill encourage new business formation? It allows new owners to deduct more start-up and organizational costs during the business’ first year and maintains start-up net operating losses and tax credits after an ownership change.
How much can now be deducted? Because the start-up and organizational expenditures are now consolidated into a single provision, taxpayers can deduct up to $20,000 (formerly $5,000) of the combined amount in the first taxable year that the business exists, as long as the expenses meet certain qualifications.
What else does it do? We are glad you asked. It allows companies that change ownership to claim some tax breaks that were previously only available to new businesses. Now a business’ net operating loss carryforwards, net operating losses, business credit carryforwards and general business credits are available in the year after the ownership change has been made.
This is one of three bills that passed the House last week. The others include the Protecting Family and Small Business Tax Cuts Act of 2018 and the Family Savings Act of 2018. As with any tax reform, the rules are complicated and often a bit fuzzy. If you have questions on how these bills will impact you or your business, give us a call. We will be happy to help you wade through the murky waters.