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The Tax Cuts and Jobs Act (TCJA) has been the biggest shift in tax law in decades, and these changes mostly began in 2018. We are nearing 2018 tax filing season, and because of TCJA changes, this years tax season calls for special attention to policies that may have changed the amount businesses owe.
Pass-through entity changes impact owners of sole proprietorships, S corporations, partnerships and limited liability companies (LLCs) treated as partnerships. The major changes to policy are:
- Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
- A new 20% qualified business income deduction for eligible owners (the Section 199A deduction)
- Changes to many other tax breaks for individuals that will impact owners’ overall tax liability
C corporations, personal service corporations (PSCs) and LLCs treated as C corporations are impacted by the following changes:
- Replacement of graduated corporate rates ranging from 15% to 35% with a flat corporate rate of 21%
- Replacement of the flat PSC rate of 35% with a flat rate of 21%
- Repeal of the 20% corporate alternative minimum tax (AMT)
Many policies affect corporations and pass-through entities alike. Some of these policies are advantageous to most companies, and others have drawbacks.
- Bonus depreciation doubles to 100% and qualified assets are expanded to include used as well as new assets
- Section 179 expensing limit doubled to $1 million, and the expensing phaseout threshold increased to 2.5 million
- Added tax credit for employer-paid family and medical leave
- Deductions for net interest expenses in excess of 30% of the business’s adjusted taxable income is not allowed (some exceptions apply)
- Net operating loss (NOL) deductions have new limits
- Section 199, commonly referred to manufacturers deduction, is eliminated. This deduction previous applied to qualified domestic qualified production activities
- Limits on like-kind property exchanges to real property not held primarily for sale, strictly limiting like-kind exchanges on personal property
- Deduction limitations for many employee fringe benefits such as entertainment, meals, and transportation
Preparing to file
This list is nonexhaustive, and many other changes under the TCJA could impact your tax filing. Contact us, and we can help ensure you are aware of all policies that affect your business, and we can assist in preparing your 2018 tax return filing. You can call us at 949-860-9902 or click here, and we will contact you.