A. The new tax reform law, commonly called the “Tax Cuts and Jobs Act” (TCJA), is the biggest federal tax law overhaul in 31 years, and it has both good and bad news for taxpayers.
Below are highlights of some of the most significant changes affecting business taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017.
- Replacement of graduated corporate tax rates ranging from 15% to 35% with a flat corporate rate of 21%.
- Repeal of the 20% corporate AMT.
- New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025.
- Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023.
- Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million.
- Other enhancements to depreciation-related deductions.
- New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply).
- New limits on net operating loss (NOL) deductions.
- Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers.
- New rule limiting like-kind exchanges to real property that is not held primarily for sale
- New tax credit for employer-paid family and medical leave — through 2019
- New limitations on excessive employee compensation.
- New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation.
More to consider
This is just a brief overview of some of the most significant TCJA provisions. There are additional rules and limits that apply, and the law includes many additional provisions. Contact your tax advisor to learn more about how these and other tax law changes will affect your business in 2018 and beyond.