As we near the end of 2018, it is time to revisit the Tax Cuts and Jobs Act of 2017 (TCJA), signed into law last December. It’s been a year of understanding the changes that we have shared with you over the last 12 months. SVA is here to help you continue to plan for 2018 and evaluate how these changes will affect you moving into 2019.
First, the C-Corporate rate cuts were significant. The TCJA provides for a 21 percent flat corporate tax rate. While businesses conducted as sole proprietorships, partnerships or S corporations may now qualify for a special deduction under TCJA beginning in 2018.
The following are some additional items that have changes and should be considered as you look at 2018 and plan for 2019:
Business Deductions and Credits
- Section 179 Expensing: Beginning January 1. 2018, the expensing limitation was increased to $1 million and the phaseout amount to $2.5 million. The new limitations are to be adjusted for inflation. Additionally, TCJA expanded the definition of Section 179 property and the definition of qualified real property for improvements was made to nonresidential real property.
- Bonus Depreciation: A 100 percent first-year deduction is allowed for qualified property acquired and placed in service during 2018. The additional bonus depreciation deduction is allowed for new and used property.
- Research and Development Credit: The research and development credit continues to be available for companies.
- Deductions for Income Attributable to Domestic Production Activities: For tax years beginning January 1, 2018 this income will no longer be deductible.
- Entertainment Expenses Deductions: After January 1, 2018, no deduction is allowed generally for entertainment, amusement or recreation, as well as membership dues for a club organized for business, pleasure, recreation or other social purposes.
- New Interest Expense Limitation: Starting January 1, 2018, a new limitation was implemented on the deductibility of interest expense for all businesses. The net business interest expense will be limited to 30 percent of a taxpayer’s “adjusted taxable income.”
- Corporate Tax Rate: The C-Corporate tax rate is a 21 percent flat corporate tax rate. There is no special tax rate for personal service corporations.
- Alternative Minimum Tax (AMT): Beginning January 1, 2018, the AMT was repealed. In 2018, 2019 and 2020, if the taxpayer has an AMT credit carryforward, that taxpayer is able to claim a refund of 50 percent of remaining credits (to the extent credits exceed regular tax for the year). For 2021, the taxpayer is able to claim a refund of all remaining credits.
- Net Operating Loss (NOL) Deduction: For NOLs arising in tax years beginning January 1, 2018, the limit on the NOL deduction is 80 percent of the taxpayer’s taxable income and provides that amounts carried to other years be adjusted to account for the limitation. Amounts are to be carried forward indefinitely.
Qualified Business Income Deduction: Starting January 1, 2018, generally a 20 percent deduction for qualified business income is available. Special rules apply when computing the deduction with limitations that need to be considered. The deduction expires for tax years beginning after December 31, 2025.
If you wish to discuss tax planning opportunities in preparation for the new rules that are generally going into effect for 2018, please contact your professional at SVA.