TO KEEP YOU INFORMED
HOW WILL TAX REFORM CHANGES IMPACT YOUR BUSINESS TAX RETURN?
TAX CHANGES IMPACT ALL BUSINESSES – HERE ARE SOME THINGS TO BE AWARE OF BEFORE IT IS TIME TO FILE YOUR RETURN
July 17, 2018
Tax Reform, otherwise known as the Tax Cuts and Jobs Act (TCJA) has made significant changes to the way we will all file business tax returns this year. The changes are extensive, and many of the changes require additional guidance from the IRS before we fully understand how they are to be applied in complex situations. For that very reason, we recommend that you take action now to understand your specific situation and how you will be impacted by the changes. Additional discussions on the changes and even updated tax projections are likely necessary to ensure that you make the correct moves this year.
Lower Tax Rates
Tax Reform brought with it a lower overall corporate tax rate. The prior year graduated tax rates have been consolidated into one 21% flat rate, and the separate rate for personal service corporations of 35% has been eliminated. While this is a benefit to corporations with taxable income in excess of $50,000; those corporations with lesser amounts of taxable income will actually see a tax increase. If your corporation is on a fiscal year end, you will have to use a blended tax rate based on the old and new tax rates.
Alternative Minimum Tax (AMT)
The corporate AMT has been repealed.
Bonus Depreciation and Section 179 Expensing
Tax reform has increased the bonus depreciation percentage to 100% and it is now available for both new and used qualified assets, and has increased the Section 179 limit to $1 million of expensing with a total purchase threshold of $2.5 million. If you purchase more than $2.5 million in eligible fixed assets during the taxable year, the expense limit allowed will be reduced.
The combination of bonus depreciation and Section 179 expensing allows for some excellent tax planning opportunities. Please contact us to help you maximize these deductions for you.
Net Operating Losses (NOLs)
Under the prior tax law, net operating losses could be carried back for two years to recapture taxes already paid, and then any remaining losses could be carried forward for twenty years. Tax reform eliminated the ability to carry back losses for most corporations. NOLs can now only be carried forward, and the deduction is limited to 80% of taxable income; however the NOL will not expire after twenty years.
For corporations with gross receipts of $25 million or more, tax reform limits the deductibility of business interest to 30% of taxable income. If your gross revenues exceed $25 million, we recommend having a discussion with us about the impact on your business. Regardless, with careful planning, we can help you maximize your deduction.
Tax reform eliminated the deduction for business entertainment. This includes such items as taking clients to sporting events or shows, and paying for season tickets. Now is the time to review your accounting for these expenses and to contact us to assist in determining how these items will be treated on your tax return.
Like Kind Exchange Restrictions
Tax reform has restricted like kind exchanges to real property only (land and buildings); under the prior law, you could utilize this strategy to defer taxes on exchanges of tangible personal property and intangible property used in a business or held for investment. Be aware of this change and contact us so we can help you plan accordingly.
Credit for Paid Family and Medical Leave
A new credit was introduced for employers who provide paid family and medical leave for qualified employees. Traditional paid sick and vacation leave does not qualify for this credit. You may be providing paid leave for employees already, so please engage with us to determine if your employee benefit qualifies for the new credit. There may be minor adjustments necessary to make your leave policy compliant with the new credit, which we can help you with.
Please Call Our Office to Schedule a Planning Meeting
There is no time like the present. Although there are still some uncertainties related to some of these provisions, and we are still waiting for technical guidance to clarify some of the changes, we are here to help you identify opportunities and to minimize pitfalls. Please contact our office to schedule a tax planning meeting.