Business Tax Planning For 2017 Tax Reform

Major tax reform legislation was signed into law late last year and resulted in sweeping changes to the tax code for the first time in about 30 years. Businesses should be aware of the provisions that have changed and plan now for how they affect them moving into 2018.

The corporate rate cuts are significant. The new law provides for a 21% flat corporate tax rate. Businesses conducted as sole proprietorships, partnerships, or S corporations may be entitled to a special 20% deduction beginning in 2018.

The 2017 tax act also significantly reforms international tax rules. This has made planning more difficult, particularly for businesses that must consider the impact of international taxes.

Below are highlights of the 2017 tax act.

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 are to 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.

Research and Development Credit:

The research and development credit is preserved.

Deductions for Income Attributable to Domestic Production Activities:

Beginning in 2018, the deduction for income attributable to domestic production activities is repealed.

Entertainments Expenses Deductions:

Beginning in 2018, no deduction is allowed generally for entertainment, amusement, or recreation; membership dues for a club organized for business, pleasure, recreation, or other social purposes; or a facility used in connection with any of the above.

NOL Deduction:

Beginning in 2018, the limit on the NOL deduction is 80% of the taxpayer’s taxable income. Unused losses can be carried forward indefinitely.

Corporations

Corporate Tax Rate:

Beginning in 2018, there is a 21% flat corporate tax rate; there is no special tax rate for personal service corporations.

Pass-Through Entities

Pass-Through Tax Rate:

Beginning in 2018, generally a 20% deduction for qualified business income is provided in lieu of tax rate changes. Special rules apply when computing the deduction and for services businesses. The deduction expires after December 31, 2025.

Please contact us to discuss tax planning opportunities in preparation for the new rules that are generally going into effect for 2018.

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