As I am sure you are aware, significant tax legislation was passed and signed into law at the end of last year. Most of the changes take effect in 2018, except where noted.
These are changes that affect businesses. If you are looking for changes that affect individuals, go to our website and click “Taxes” under the “Insights” tab.
This is not meant to be a comprehensive list, but I’ve tried to highlight the changes that will affect most small businesses. I hope you find this summary useful for your planning purposes.
As always, you should consult your tax advisor for advice pertaining to your specific circumstances.
Entertainment – No longer deductible
Business Asset Expensing (Sec 179) – Increased to $1M per year.
Depreciation (Luxury Autos) – Deduction increased to $10k year one, $16k year two, $9,600 year three, $5,760 year four and later. Still $25k in year one for SUVs. Limits do not apply to heavy trucks or vans.
Deduction for Pass-through Business Income – Deduction is 20% of business income.
If taxable income is below $315,000 married, or $157,500 single, the 20% deduction is allowed in full.
If taxable income exceeds $415,000 married, or $207,500 single, the deduction is the lesser of 20% of business income or 50% of W2 wages (or 25% of wages plus 2.5% of fixtures and equipment, whichever is greater).
In the phase-out range ($315,000 to $415,000, married, or $157,500 to $207,500, single), the deduction is the lesser of the 20% deduction reduced on a pro-rata basis or 50% of wages (or 25% of wages plus 2.5% of equipment, whichever is greater).
If income is from a specified service business, and taxable income exceeds $415,000 married, or $207,500 single, no deduction is allowed.
A specified service trade or business is any activity in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, any business where the principal asset is the reputation or skill of one or more of its owners or employees (excluding engineering and architecture).
Net Operating Losses – Carryover deduction (losses from prior years) limited to 80% of current year income. Carryback of losses is no longer allowed.
Like Kind Exchanges – Limited to real property. No longer applies to autos or equipment.
Corporation Tax Rate – 21% flat rate