Key Changes for Businesses in the Tax Cuts and Jobs Act
Listen to our Tax Directors describe the “must know” news for business owners.
Historic Tax Reform Bill will Benefit Many Companies
There’s no secret that the new tax plan approved by Congress and sent to President Trump is very generous to many different types of companies and industries, including those that have foreign income producing activity.
In 2018, both small and large businesses will see significant change to their tax situation, and will need to do planning early in the year to maximize tax benefits throughout the year.
Key Changes in the New Tax Plan for Companies
The 500-page bill includes the following key changes for US based companies with domestic and foreign operations:
1. CORPORATE TAX RATE
a. Cut from 35% to 21%
b. Repeals the corporate AMT
Freed Maxick Insights: With the new rate beginning in 2018, it gives corporations very little time to push through deductions at the higher rate. With such a drastic decrease to the corporate rate (40%), it could result in pass-through entities converting to C corporations.
2. PASS-THROUGH BUSINESSES
a. Establishes a 20% deduction of certain business income, but deductions are limited once the income reaches $157,500 for singles and $315,000 for joint.
Freed Maxick Insights: As mentioned above, it is possible to see pass-through businesses convert to C corporations with the new corporate tax rate. But be careful, this provision does not apply to all pass through businesses. Certain specified service trade or businesses are excluded.
12 Questions to Ask Your Tax Advisor About Cost Recovery Tax Reform
How real property owners can take advantage of the latest tax minimization opportunities
If you are a real property owner, your 2017 and 2018 tax planning and return preparation will be impacted by changes to tax reform cost recovery rules resulting from the new Tax Cuts and Jobs Act.
You’ll be faced with a few key questions related to cost recovery like whether to depreciate or expense property, whether to capitalize repairs in conformity with book treatment or expense, and whether to claim bonus depreciation or to elect not to claim bonus depreciation for any class of property – all items to discuss with your Tax Advisor.
We also recommend that you ask your Advisor to discuss the following tax minimization opportunities – and challenges – with you:
New IRS Partnership Tax Audit Rules are Now in Effect
Significant Economic Impact on Partners on the Horizon?
The 2015 Bipartisan Budget Act repealed existing TEFRA partnership audit procedures and replaced them with the new Partnership Centralized Audit Regime which takes effect for tax years beginning after 2017, or for any partnership that elects application for tax years beginning after November 2, 2015.
Exclusions from Tax Act’s 20% Pass-through Deduction
Complex Qualification Rules and Calculations Lie Ahead
The Tax Cuts and Jobs Act has introduced into tax law the opportunity for an individual taxpayer to take a 20% deduction related to their qualified trade or business income from a partnership, S-corporation, or sole proprietorship. Determining this deduction is not as easy as just multiplying your qualified business income by 20% because there are limitations that must be considered when calculating your income deduction.
What’s Not Included in the Act’s Definition of a Qualified Trade or Business?
First, it is important to understand what is not included in the definition of a qualified trade or business.
Qualified trades or businesses do not involve the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, and any trade or business where the principal asset of the business is the reputation or skill of one or more of its employees. The Tax Cuts and Job Act specifically includes engineering and architecture services as qualified trades or businesses.
However, if your business is excluded under this provision, you still may qualify for benefits if your taxable income is below the thresholds defined below.
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Major changes to existing tax code, new tax credits and incentives, opportunities for corporations to minimize taxes, small business tax relief… and a whole lot more.
If you would like to discuss how Federal and State changes to tax codes affect your situation, call us at 716.847.2651 to schedule a complimentary Tax Situation Review.