As you may be aware, major tax reform legislation has been signed into law this year and resulted in sweeping changes to the tax code for the first time in 30 years. Businesses should be aware of the provisions that have changed and plan now for how they affect you moving into 2018.Below are the key highlights of the 2017 tax act that could impact your business:
Business Deductions and Credits
Section 179 Expensing:
The expensing limitation is increased to $1 million and the phase-out amount to $2.5 million. The new limitations will be adjusted for inflation. The act further expands the definition of §179 property and the definition of qualified real property for improvements made to nonresidential real property.
Temporary 100% Expensing of Certain Business Assets:
For property placed in service after September 27, 2017, and before January 1, 2023, businesses can expense 100% of qualified property (tangible personal property with a recovery period of 20 years or less under MACRS). Taxpayers may elect 50% in lieu of 100% expensing for qualified property placed in service during the first tax year ending after September 27, 2017.
Deductions for Income Attributable to Domestic Production Activities:
Beginning in 2018, the deduction for income attributable to domestic production activities is repealed.
Luxury Automobiles Depreciation Limits:
For passenger automobiles placed in service after December 31, 2017, for which the additional first-year depreciation is not claimed, the maximum amount of allowable depreciation is increased to $10,000 for the year in which the vehicle is placed in service; $16,000 for the second; $9,600 for the third year; and $5,760 for the fourth and later years in the recovery period. For passenger automobiles placed in service after 2018, these dollar limits are indexed for inflation. For passenger autos eligible for first-year bonus depreciation, the maximum first-year depreciation allowance remains at $8,000.
Cash Method of Accounting:
The $5 million average gross receipts threshold for corporations and partnerships with corporate partners that are not allowed to use the cash method of accounting is increased to $25 million (indexed for inflation) and would be extended to certain farming entities for tax years beginning after December 31, 2017.
Corporate Tax Rate:
Beginning in 2018, there is a 21% flat corporate tax rate; there is no special tax rate for personal service corporations.
Alternative Minimum Tax:
Beginning in 2018, the alternative minimum tax is repealed. In 2018, 2019 and 2020, if a taxpayer has AMT credit carryforward, a taxpayer can claim a refund of 50% of remaining credits (to extent credits exceed regular tax for year). For 2021, a taxpayer can claim a refund of all remaining credits.
Pass-Through Income Deduction:
Beginning in 2018, generally, a 20% deduction for qualified business income is provided in lieu of tax rate changes. Special rules apply for specified service trade or businesses with qualified income in excess of $315,000 (joint returns) or $157,500 (other returns).
Please contact us to discuss tax planning opportunities in preparation for the new rules that are going into effect for 2018.