Hawaii Business Magazine
Headline: What Happened to 2018?
By Reg Baker
Another year has fallen, and we are moving forward. Whether 2019 is a better year than 2018 is pretty much up to you. You can make it happen.
If you want history to repeat itself, then do nothing and maybe it will. But if want to do better, then identify what worked well in 2018 and what did not work so well (consider cash flow, profit, budget, sales, expenses, marketing, hiring, moral, employee success, etc.). A time-honored management concept is to “manage by exception”. In general, things that worked well in 2018 can be pretty much left alone; just keep doing them right. But those things that did not work well needs attention and a solution to make them better. Identify the areas with room for improvement and plan to improve them. Get some expert help if needed. Be proactive, tweak the processes and track results.
A quote that is very meaningful to me is, “a vision without a plan is just a mirage”. Do some planning and make it happen.
One significant change that requires some serious attention are the new 2017 federal tax reform rules passed in December 2017. Hopefully you have already been communicating with your tax advisor about how the federal tax reform changes will impact you. Most will benefit and see reduced federal taxes being paid, but the process will be different and possibly more complicated. Being aware of how to maximize the benefit of federal tax reform could save you significant federal tax dollars. You may have noticed that I have been emphasizing federal taxes. The Hawaii legislature initially elected not to follow 2017 federal tax reform and keep the older higher tax structure for state income tax. Unless this position changes (anything is possible), Hawaii will have two sets of tax rules to follow; one for Hawaii tax returns and another for federal tax returns. So much for tax simplification.
Other than the reduced 2018 income tax rates impacting everyone and the doubling of the standard deduction which helps many, here are a few more significant changes that you should be familiar with or ask your tax preparer about:
Depreciation – Bonus and Section 179. If you bought any business property in 2018, there is a good chance you can immediately expense it rather than depreciate it over several years or more. This might be good for reducing taxes but will reduce your profitability, which might need to be explained to the Banks.
QBI or Section 199A - For certain flow through entities and self-employed individuals, you might be able to deduct 20% of your qualified business income (QBI). This could be huge but complicated. Work with your tax preparer asap to maximize this potential tax saving opportunity.
SALT Limitation – State and Local Tax (SALT) is limited to $10,000. For high income tax states like Hawaii this could catch a few people. Your income tax and real estate taxes are capped at $10,000. Rental and business properties are not included in this cap.
Mortgage Interest - only deductible for $750,000 of mortgage debt and no deduction for home equity loans if not specifically used to buy or improve your home. There are some dates, twists and turns to the mortgage deduction rules so check with your preparer for your specific situation.
Good luck in 2019. With proper planning and a dash of discipline it could be the best year yet!