The Tax Cuts and Jobs Act of 2017 will bring sweeping changes to how your business entities will be taxed. Please review the following changes and contact us so that we may evaluate its impact on your business.
Corporate tax rate changes:
There will be a flat corporate tax rate of 21%. This rate also applies to personal service corporations.
Corporate alternative tax has been repealed:
Prior to the new tax bill, the corporate alternative minimum tax (AMT) was imposed at 20%. Starting in 2018, the corporate AMT will be repealed.
Decrease in dividends received deduction:
The dividends received deduction is available only to corporations and is intended to mitigate multiple taxation on dividend income paid to the recipient corporation. The new tax law will lower the 80% dividends received deduction to 65% and the 70% dividends received deduction to 50%.
New 20% qualified business income deduction for passthrough entities:
Beginning in 2018, individual taxpayers can generally deduct up to a 20% deduction of their domestic “qualified business income” for sole proprietorships (Schedule C), LLCs, partnerships, S Corporations, and rental activities (Schedule E). Because these rules are incredibly complex, let’s discuss how we can help you maximize this deduction and make sure you utilize this on your individual return.
Increasing the Section 179 deduction:
For 2018, the expensing limit increased to $1 million (up from $510,000 for 2017) and the phaseout threshold increased to $2.5 million (up from $2.03 million for 2017).
Increasing and expanding the bonus depreciation:
For 2018, the new tax law provides for full and immediate expensing of 100% (previously 50%) of the cost of qualified property acquired and placed in service after September 27, 2017. In addition, the Tax Cuts and Jobs Act allows bonus depreciation for new and used equipment (previously only new equipment).
Limitation on business interest:
The new law limits the net interest expense deduction to 30% of business AGI. Any business interest that isn’t deductible may be carried forward indefinitely.
Elimination of the Section 199 deduction (domestic production activities deduction)
New limits on net operating loss (NOL) deductions:
With the old tax law, the NOL of a corporation may be carried back 2 years and forward 20 years to offset taxable income for those years. With the new tax law, NOL can be carried forward indefinitely and there are no carrybacks.
New limits on deductions for employee fringe benefits, such as entertainment and meals and transportation:
- Entertainment expenses directly related to a taxpayer’s business are no longer deductible.
- Only meals provided to employees through an eating facility and for the convenience of the employees are allowed the 50% deduction. All other types of meals related to the business are no longer deductible.
- Expenses associated with providing “qualified transportation” for employees to commute between the employee’s residence and place of employment can no longer be deducted. Qualified transportation include ride sharing, transit passes, parking, bicycle commuting.
The Tax Cuts and Jobs Act will undoubtedly affect your businesses in 2018. Allow us to help guide you through this tax maze and help you maximize your tax benefits and lower your tax liability.