How do the tax reform proposals affect my business?

John Csargo

Updated January 22, 2018.

Here is a recap of the recently signed tax law, that could affect your business in 2018 and beyond.

Section 179 Deduction.

  • Increased the maximum annual Section 179 deduction to $1 million and increased the deduction phase-out threshold to $2.5 million (both numbers would be adjusted annually for inflation).

Bonus Depreciation.

  • Allows unlimited 100% first-year depreciation for qualified assets acquired and placed in service after 9/27/17 and before 1/1/23.  Also allows bonus depreciation on new and used equipment.  In the past, bonus depreciation was only available on new equipment.

Luxury Auto Depreciation Limits.

  • Have increased substantially.  The new limits are about three times higher than the limits in effect in 2017.

Tax Rate on Pass-through Income.

  • Allows an individual taxpayer to deduct 20% of business income from a pass-through entity.  The law identifies “specified service trades or businesses” and eliminates the deduction for taxpayers associated with these businesses with income above certain thresholds.  Specified service trades or business includes any business in the field of accounting, law, consulting, athletics, financial or brokerage services.

In addition, there is a wage limitation rule which is similar to the domestic production deduction limitation.

Corporate Tax Rate.

  • Installs a C corporation income at a flat 21% rate for tax years beginning in 2018 and beyond.

Net Operating Losses (NOLs).

  • For NOL’s generated in ’18 or later, the NOL carryover will only offset 80% of taxable income (versus 100% under current law). NOLs cannot be carried back to earlier tax years but can be carried forward indefinitely.

More Businesses Could Use Cash-method Accounting.

  • Allows a C corporation or partnership with a C corporation partner to use the cash method of accounting if its annual gross receipts for the prior three years don’t exceed $25 million.

Limits on Deducting Interest Expense.

  • Deductions for business interest expense in tax years beginning in 2018 and beyond generally couldn’t exceed 30% of the business’s adjusted taxable income (subject to exceptions).  Adjusted taxable income adds back depreciation and amortization as well as other adjustments.

Elimination of Entertainment Expense.

  • Deductions for entertainment are eliminated.  The 50% deduction for meals is retained.

Domestic Production Deduction.

  • The domestic production activities deduction is eliminated.

This covers the majority of the provisions that affect middle market businesses. There are several other important changes have that affect businesses included in the new law as well.

For additional information contact John Csargo, CPA.


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