The dawning of 2019 means the season for tax filing deadline 2018 will soon be upon us. After year end, it’s generally too late to take action to reduce 2018 taxes. Business owners may, therefore, want to shift their focus to assessing whether they’ll likely owe taxes or get a refund when they file their returns this spring, so they can plan accordingly.
You might have heard of the biggest tax law changes in decades, under the Tax Cuts and Jobs Act (TCJA). Most laws under the TCJA are generally started going into effect beginning in 2018. These new tax rules for small businesses will significant impact their bottom line. So, refreshing yourself on the major changes prior to the 2018 tax filing deadline is a good idea.
Taxation of Pass-Through Entities
These changes generally affect owners of S-Corporations, Partnerships and Limited Liability Companies (LLCs) treated as Partnerships, as well as Sole Proprietors:
- Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%.
- A new federal tax deduction of 20% for qualified business income for eligible owners (the Section 199A deduction).
- Changes to many other tax breaks for individuals that will impact owners’ overall tax liability.
Taxation of Corporations
These changes generally affect C-Corporations, Personal Service Corporations (PSCs) and LLCs treated as C-Corporations:
- Replacement of graduated corporate rates ranging from 15% to 35% with a flat corporate rate of 21%.
- Replacement of the flat PSC rate of 35% with a flat rate of 21%.
- Repeal of the 20% corporate alternative minimum tax (AMT).
Tax Break Positives
These changes generally apply to both Pass-Through Entities and Corporations:
- Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets.
- Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million.
- A new tax credit for employer-paid family and medical leave.
Tax Break Negatives
These changes generally also apply to both Pass-Through Entities and Corporations:
- A 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 (not to be confused with the new Sec.199A deduction), which was for qualified domestic production activities and commonly referred to as the “manufacturers’ deduction.”
- A new rule limiting like kind exchange accounting to real property that is not held primarily for sale (generally no more like-kind exchanges for personal property).
- New limitations on deductions for certain employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation.
Preparing for 2018 Tax Filing Deadline
Keep in mind that additional rules and limits apply to the rates and breaks covered here. Also, these are only some of the most significant and widely applicable TCJA changes; you and your business could be affected by other changes as well. Contact us to for a full Tax Cuts and Job Act analysis. We can help you learn precisely how you might be affected and for help preparing for your 2018 tax return filing. Our team of tax professionals can also help in beginning to plan for 2019.