The recently passed tax reform bill, commonly referred to as the “Tax Cuts and Jobs Act” (TCJA), is the most expansive federal tax legislation since 1986. It includes a multitude of provisions that will have a major impact on businesses.
Here’s we provide a Tax Cuts and Jobs Act analysis with a look at some of the most significant changes. They generally apply to tax years beginning after December 31, 2017, except where noted.
– Replacement of graduated corporate tax rates ranging from 15% to 35% with a flat corporate rate of 21%.
– Repeal of the 20% corporate alternative minimum tax (AMT).
– New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025.
– The Tax Cuts and Jobs Act is doubling the new bonus depreciation rules to 100%. Plus, there is also an expansion of qualified assets to include used assets. Effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023.
– For the real estate depreciation deduction, there is doubling of the Section 179 expensing limit to $1 million. Plus, there is an increase of the expensing phaseout threshold to $2.5 million.
– Other enhancements to depreciation-related deductions.
– New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply).
– New limits on net operating loss (NOL) deductions.
– Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers deduction. Effective for tax years beginning after December 31, 2017, for non-corporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers.
– New 1031 exchange accounting rule, limiting like-kind exchanges to real property that is not held primarily for sale.
– There is a new tax credit for employee benefits with employer-paid family and medical leave. This will be applicable through 2019.
– New limitations on excessive employee compensation.
– New limitations on deductions for employee tax free fringe benefits, such as entertainment and, in certain circumstances, meals and transportation.
Keep in mind that additional rules and limits apply to what we’ve covered here. In addition, there are other Tax Cuts and Jobs Act provisions that may affect your business. Contact us for more details and to discuss what your business needs to do in light of these changes.