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Special Report on Tax Cuts and Jobs Act: For Businesses

Early this morning, the U.S. Senate voted and passed the Tax Cuts and Jobs Act, and this afternoon, the U.S. House of Representatives did the same. With this new tax policy now heading to President Trump’s desk for signature, it’s time for every business owner to understand what’s in it, and how it may impact their bottom line.

Here, our RDG+Partners tax professionals have outlined changes to the tax policy relating to businesses:

  • A deduction for pass-through income has been introduced. Taxpayers allowed a special 20% deduction for qualified business income.
    • This deduction is not allowed in computed adjust gross income (AGI), but rather is allowed as a deduction regarding taxable income.
  • The bill contains a special loophole for taxpayers with incomes below $157,500 single, $315,000 married filing jointly that own service businesses (lawyers, accountants, doctors).
    • The wording will encourage many employees to classify as independent contractors.
  • A new limitation on excess business losses has been introduced. Excess business losses will be limited to $500,000 for married filers, and $250,000 for all other taxpayers
  • The Corporate tax rate will permanently be set to 21% starting in 2018.
    • The permanent reduced rate and certain C-Corp mechanisms will make the entity choice decision that much more complicated.
  • The dividends received deduction percentages have been reduced from 80% and 70% to 65% and 50%, respectively, starting in 2018.
  • Section 179 expensing increased to $1,000,000; phase-out threshold to $2,500,000.
  • In addition to the expanded expensing limits, the “qualified real property” definition has been expanded to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging.
  • Eligible qualified real property expanded to include the following improvements to nonresidential real property after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.
  • Starting September 27, 2017, bonus depreciation increased to 100% until 2023.
    • Used property now qualifies for bonus depreciation.
  • 15-year recovery period and straight-line depreciation for qualified improvement property
  • The deduction limits for luxury automobiles and sedans increased.
  • Taxpayers with gross receipts under $25 million now qualify for:
    • Cash accounting method,
    • Exemption from UNICAP rules, and
    • Completed contract method for construction.
  • Business interest expense limited to 30% of adjusted business income.
  • Net operating loss carrybacks and the special carryback provisions removed. NOLs that arise after December 31, 2017 limited to 80% of taxable income.
  • Like-kind exchanges are now limited only to real property that is not held primarily for sale.
  • Specified research & experimentation expenses must be capitalized and amortized ratably over a 5-year period.
  • Deductions for fringe benefit expenses have been limited:
    • Deductions for entertainment expenses are now disallowed;
    • The 50% meals deduction has been expanded to include meals provided through an in-house cafeteria or otherwise on the premises of the employer; and
    • Deductions for employee transportation fringe benefits denied, but the exclusion from income for these received benefits retained.
  • The domestic production activities deduction repealed.
  • Corporate AMT repealed starting in 2018.
  • For the 2018 and 2019 taxable years, a new credit for employer-paid family and medical leave has been introduced.
  • Starting in 2018, Partnership Technical Terminations have been repealed.
  • UBTI must now be separately computed for each trade or business activity.