The 2017 Tax Cuts and Jobs Act (TCJA) ushered in the most significant tax laws changes we’ve seen in more than three decades. While the news has focused on the favorable tax rate cuts for big corporations, the new laws are affecting businesses of all sizes. Here are six of the changes most likely to affect your business:
1. Taxation of Corporations
The TCJA has introduced a 21 percent flat tax rate to C corporations, personal service corporations (PSCs) and LLCs treated as C corporations and repealed the 20% corporate alternative minimum tax (AMT). Previous corporate tax rates were 15, 25, 34 and 35 percent. The new rate benefits most corporations but may result in higher taxes for those lower income corporations which previously qualified for a 15 percent tax rate.
2. Qualified Business Income Deductions
The Qualified Business deduction (also referred to as the QBI deduction, the pass-through deduction or the Section 199A deduction (or qualified business income deduction) became available for eligible taxpayers for the first time on their 2018 federal income tax return and provides a deduction for qualified business income from a business operated directly or through a pass-through entity. C corporations do not qualify for this deduction.
• Eligible self-employed taxpayers and small business owners may now be entitled to exclude up to 20 percent of qualified business income (QBI) from their domestic business on their federal income taxes. This does not apply to their self-employment tax.
• Eligible taxpayers may also be entitled to a deduction of up to 20 percent of their combined qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.
Rates may vary and not every eligible business automatically qualifies for the deduction. For more information and details on your unique situation, we recommend that you consult a tax professional.
3. More Changes to Deductions – The Good and Other News
The Good News: Pass-through entities and corporations will now enjoy a doubling of bonus depreciation to 100%, expansion of qualified assets to include used assets, a doubling of the Section 179 expensing limit to $1 million and an increase in the expensing phaseout threshold to $2.5 million. A new tax credit for employer-paid family and medical leave has also been introduced.
The Other News: The negative tax break changes for pass-through entities and corporations include 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, the elimination of the Section 199 deduction, and a new rule limiting like-kind exchanges to real property not held primarily for sale.
4. Employee Fringe Benefits
New limitations on certain employee benefit deductions have been introduced, including entertainment, meals and transportation. Here’s a breakdown of some of the changes to the more popular employee fringe benefits: (Manny, please create a chart)
Expense Type |
2017 Deduction
|
2018 Deduction
|
| Client Entertainment | 50% Deductible | 0% Deductible |
| Office Meals and Snacks | 100% Deductible | 50% Deductible |
| Company Party | 100% Deductible | 100% Deductible |
| Meals and Entertainment (Included in Compensation) |
100% Deductible | 100% Deductible |
| Transportation Benefits | 100% Deductible | 0% Deductible |
5. Car Depreciation
Business owners who purchased a passenger vehicle for work in 2018 or later will now benefit from a higher depreciation allowance. Beginning in 2018, the first year depreciation allowance will be $18,000 versus $10,000 in 2017.
6. Estimating Taxes
Individuals, including sole proprietors, partners and S corporation shareholders, may need to pay quarterly installments of estimated tax, unless they owe less than $1,000 when they file their tax return or they had no tax liability in the prior year. The IRS has provided additional information about tax withholding, worksheets and examples in Publication 505.
We can help.
If you have questions, you’re not alone. The TCJA introduced one of the largest sweeping tax law changes in more than 30 years. These are just a few of the most significant tax reform changes affecting businesses. Ronald A. Muscarella, CPA, PA and our team of tax experts understand the ins-and-outs of these sweeping tax law changes, how to best leverage them to your advantage, preserve your wealth and get you the most favorable return possible. Contact us to learn how you and your business will be affected, to provide assistance preparing your 2018 tax return or for a review of previous tax filings for a potential retroactive refund.
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Always Settling for Less.
Ronald A Muscarella, CPA and the Tax Relief Team has helped 1000’s of clients settle their IRS Tax Debt for less than they owed. There is relief for your IRS Tax debt no matter how much you owe. Please contact us today at (954) 746-7801 and put your IRS Tax problems behind you.
