Everyone knows about income taxes and sales taxes, but we tend to forget about excise taxes, because they’re not obvious. Click through for an introduction to this important class of taxes, and see what’s changed.

Excise taxes are paid when purchases are made on specific goods or activities, such as wagering or highway usage by trucks. The producers or merchants pay the tax and typically include the additional tax in the price to the end consumer. Governments levy excise taxes on goods and services that have a high social cost, such as cigarettes, alcohol and gambling. Excise taxes are also referred to as selective sales or differential commodity taxes.

Here are six key facts regarding common, little-known excise taxes —

1. The tax reform bill exempted certain payments made by an aircraft owner or sometimes a lessee, related to the management of private aircraft, from excise taxes imposed on taxable transportation by air.
2. To support the use of alternative fuels, fuel tax credits are allowed on certain types of fuel including the following: biodiesel, including renewable diesel and mixture; alternative fuel credit and mixture; and second-generation biofuel producer.
3. Indoor tanning service providers may need to file a federal excise tax return. These services are subject to a 10 percent excise tax under the Affordable Care Act. This is an example of how excise taxes are often levied on goods and services that are considered unnecessary.
4. Taxpayers who engage in certain specified activities related to excise tax must be registered by the IRS before engaging in the activity. This is known as the 637 registration program. The taxpayer can go online to confirm whether they or a specific company has a valid IRS registration.
5. You may be surprised to know that there is an archery federal excise tax, including the importation and manufacture of archery and fishing products. These, of course, affect relatively few people, but are good examples of how a product or service may be subject to a particular excise tax that is not necessarily obvious.
6. The Environmental Protection Agency’s list of devices to reduce high tractor idling may be exempt from the 12 percent retail excise tax. This shows that a major component of the excise program is motor fuel, and different rates may apply to different types of fuel — gasoline, diesel and gasohol.

The idea is to limit the use of certain products, such as alcohol and tobacco. States also levy excise taxes. Some people say that excise taxes are stopgap measures to solve short-term problems. In fact, some note that discriminatory excises on the consumption of specified products is a step back in development of fiscal systems, postponing a more proper reform for the country or state.

Are you unsure how excise taxes may affect you? Call us at 856-534-7327 now and request a free consultation to learn more about what our Philadelphia, NJ CPA firm can do for you and your business.

 

The most recent tax reform law effectively reduces taxes for many small businesses. It also creates some new complications. Here are the highlights.

Corporate tax rates are cut.

The graduated corporate tax structure has been replaced by a flat rate of 21%. This represents a significant rollback for corporations in the former top 35% bracket. Of particular note to owners of closely-held C corporations: the new law repeals the corporate alternative minimum tax and makes the simpler cash method of accounting available to more corporations.

Owners of “pass-through” entities gain a new deduction.

The legislation creates a new deduction for 20% of business pass-through income. This deduction is available to owners of almost any type of trade or business whose taxable income does not exceed $315,000 (joint return) or $157,500 (other returns). Above those amounts, the deduction is generally limited to the greater of:

• 50% of W-2 wages paid by the trade or business, or
• The sum of 25% of W-2 wages paid plus 2.5% of the original cost of tangible, depreciable assets used in the business.

When the business has more than one owner, the owners use their allocated shares of wages and assets in computing the limitations.

Different restrictions apply to individuals in certain service businesses (e.g., law, medicine, and accounting). For those individuals, the ability to take the deduction is reduced with taxable income between $157,500 and $207,500 ($315,000 and $415,000 on a joint return) and is unavailable once taxable income reaches the top of the applicable range.

The taxable income thresholds will be adjusted for inflation after 2018, and the 20% deduction is scheduled to expire after the 2025 tax year.

Depreciation and expensing provisions are more generous.

• Bonus depreciation percentage increases from 50% to 100%. Businesses may deduct the full cost of qualifying property acquired and placed in service after September 27, 2017, and before January 1, 2023 (before January 1, 2024 for certain property). Unlike under prior law, the property does not have to be new — used property can also qualify. Starting in 2023 (2024 for certain property), the deduction is gradually scaled back, and it sunsets after 2026.
• Section 179 expensing limit increases from $500,000 to $1 million. The law doubles the annual expensing limit and raises the investment threshold over which the deduction begins to phase out to $2.5 million. These new limits will be adjusted for inflation after 2018. The new law also makes the Section 179 expensing election available for more types of property, including certain improvements to nonresidential real property.
• Auto depreciation limits increase more than threefold. The new annual caps are generally effective for business autos placed in service after 2017.

Other changes could have an impact.

• The deduction for business entertainment expenses is repealed, effective for expenses paid or incurred after 2017.
• The costs of certain employer-provided transportation fringe benefits, such as transit passes, are no longer deductible, also effective for expenses paid or incurred after 2017.
• For the 2018 and 2019 tax years, employers that provide paid family and medical leave may claim a credit for a portion of the expense (requirements apply).
• The domestic production activities deduction is repealed, effective for 2018 and later tax years.

These are just highlights of some of the changes included in the Tax Cuts and Jobs Act of 2017. Please consult a qualified tax advisor for more detailed information about how the law’s provisions may apply to your business and personal tax situation.

Start planning your tax strategy today by calling 856-534-7327 now or request your free consultation online and we’ll contact you to discuss how we can reduce your tax burden.

Source/Disclaimer:

This communication is not intended to be tax advice and should not be treated as such. You should contact your tax professional to discuss your specific situation.