Understanding the New Tax Reform Bill: Changes Affecting Business

In our last blog, we offered an overview of the Tax Cuts and Jobs Act and discussed items that affect your 2017 income tax return.Now let’s look at changes affecting business income taxes (and associated business growth) in 2018, which will be reflected on your returns next tax season:

• The big news is a flat 21% rate on C corporation income. Pass-through entities receive a special 20% deduction to take on the owners’ returns to provide similar tax relief, but there are some significant and interesting limitations.
• Capital assets acquired after 9/17/17 are 100% deductible under bonus depreciation rules, phasing out after 2023. Real Estate is excluded. Section 179 deductions are allowed on up to $1 million of asset purchases, before phasing out completely when income is above $2.5 million per year.

Allowable items now include lodging furnishings and non-residential roofs, HVAC, alarm, fire and security protection systems. Remaining items are depreciated at lower real estate property lives of 25 years and qualified improvement property of 10 years. Grab this opportunity while you can, as these high profile provisions affect significant tax revenue.

• Business entertainment now excludes amusement and recreational facilities, related membership dues, etc. Club seats and booster tickets will take a big hit here. Traditional business meals keep the 50% deduction.
• Business interest is limited to 30% of gross revenue to discourage bond financing over stock.
• The popular Domestic Production Activities Deduction stops for tax years beginning after 2017. Some business credits are repealed – employer-provided child care, rehabilitation, new market, and disabled access. R & D credits survive, but expenditures are now amortized over five years.

For additional information, we’ll be posting our annual tax newsletter to our Helpful Resources P&R Publications link soon, and it provides more details on this historic tax legislation.Of course, if you need a proven tax accounting firm to assist with your tax advice and preparation to achieve the financial planning results you desire, our team is available to assist you.Contact us at Office@CPAsite.com or 904.396.5400.