What Businesses Need to Know About the Tax Cuts and Jobs Act of 2017

A lot has been written in the press about the U.S. Tax Cuts and Jobs Act of 2017. Our experts at Barsz Gowie Amon & Fultz took the time to study the comprehensive legislation, and provide the following list of tax changes and implications so you will be better prepared at tax time.

Changes for S Corporations, LLC’s, Partnerships, Sole Proprietorships and Nonprofits

  • New Deduction for S corporations, Partnerships, Sole proprietors, Limited Liability Companies (LLCs).
  • Limitations on losses from businesses—up to $250,000 for individuals and $500,000 for married filing jointly.
  • Limitations on using net operating losses (NOLs) against income.
  • No longer able to carry net operating losses back to prior years; you can only carry them forward.
  • Partnerships will no longer terminate if a partner who owns 50% or more of the company leaves the company.
  • S corporation that converts to C corporation: Some dividends are taxable on a pro rata basis.
  • Changes in calculations of unrelated business income (UBI) for nonprofit organizations.
  • The deduction of business interest expense is limited to 30% of the business’ adjusted taxable income. An exemption applies if the average annual gross receipts for the prior three-year period do not exceed $25 million.
  • The Domestic Production Activities Deduction is repealed.
  • Deductions for entertainment expenses are disallowed.
  • The cash method of accounting may be used by taxpayers if their average gross receipts for the prior three-year period do not exceed $25 million.
  • Taxpayers that meet the $25 million gross receipts test are not required to account for inventories.

 

C Corporation Changes

  • Corporate tax rate is reduced to a flat 21% rate.
  • Corporate Alternative Minimum Tax is repealed.

 

Depreciation Rule Changes

  • The maximum amount expensed under Code Section 179 is increased to $1 million and the phase-out threshold is increased to $2.5 million.
  • Cost recovery of qualifying business assets is increased as follows:
    • 100% for property placed in service after September 27, 2017, and before January 1, 2023.
    • 80% for property placed in service after December 31, 2022, and before January 1, 2024.
    • 60% for property placed in service after December 31, 2023, and before January 1, 2025.
    • 40% for property placed in service after December 31, 2024, and before January 1, 2026.
    • 20% for property placed in service after December 31, 2015, and before January 1, 2027.
  • Luxury automobile depreciation limits increased to $10,000 for the year vehicle placed in service; $16,000 for the second year; $9,600 for the third year; and $5,760 for the fourth and later years.
  • Qualified improvement property placed in service after December 31, 2017, is generally depreciated over 15 years using the straight-line method.

 

Contact us if you need help understanding any of these changes, or to create a strategy for your business’ tax and accounting needs.