Tax Cuts & Jobs Act: Provisions for Businesses

The Tax Cuts and Jobs Act was signed into law on December 22, 2017 and is effective for tax years beginning January 1, 2018 and after. The provisions for Individual, Estate, and Pass-Through entities expire after the 2025 tax year.  However, corporate provisions are permanent.  Listed below is an overview of the highlights businesses should be aware of.

Corporate Highlights

• C-Corp tax rates have been reduced to a flat rate of 21% permanently.
• Alternative Minimum Tax (AMT) has been repealed.
• Net Operating Losses (NOL) will be limited to 80% of taxable income. The NOL can now be carried forward indefinitely, but carryback is no longer an option.

Pass-Through Highlights

• New 20% deduction for pass-through (S-Corps, Partnerships, Sole Proprietors) income. There are many limitations including type of business, wages paid and income level.

Depreciation Highlights

• Applicable to all taxpayers.
• 100% bonus depreciation (increase from 50%) deduction for all eligible fixed assets purchased and placed in service from 09/27/2017 through 2022. This also now applies to used assets.
• Section 179 limit increased to $1,000,000 (increase from $510,000) and phase-out increased to $2,500,000 (increase from $2,030,000). Property eligible for deduction has expanded as well.

Other Highlights

• Like kind exchanges are repealed for personal property but retained for real property.
• Domestic Production Activities Deduction (DPAD) is repealed for manufacturers.
• Entertainment deductions, which previously qualified under the 50% rule, are now disallowed.  Meals provided through in-house cafeteria or on premises of employer are now subject to the 50% deduction.
• Business interest deductions will be limited to 30% of adjusted taxable income.
• Research & Development Credit, Low-Income Housing Credit, and Work Opportunity Credit are retained.

These are just a few of the more significant provisions in the new legislation. The legislation covers much more then we have addressed above.  Please contact us to discuss how the above provisions or the many others in the Act could affect your particular tax situation.