With the largest tax law update in over 30 years, navigating the course with the new laws can be confusing. Businesses need to be aware of these changes and consult with their tax professional to get advice so they can be knowledgeable of their options and plan ahead!
For All Businesses
Here are some highlights of changes that affect all business entities:
- 100% bonus deduction for assets placed in service after September 27th, 2017. The old law only allowed 50% deduction.
- Old law only allowed you to take bonus depreciation on new assets. The new law allows used property to qualify.
- Deduction for energy efficient commercial buildings.
- Credit for renewable diesel fuel.
- Old law allowed businesses to carry back a loss 2 years and carry forward the loss 20 years. The new law eliminates the 2-year carryback, but allows you to carry the loss forward indefinitely!
- If a business pays out money for sexual harassment and there is a non-disclosure agreement, there is no deduction for the payout. If no non-disclosure agreement exists, then the payout is deductible.
- New credit for employers that provide family leave in 2018 and 2019. A company must pay more than 50% of the employee’s historical wages to receive the credit
- Transportation fringe benefit expenses are revoked (parking/mass transit), but excluding it from the employee’s income is retained.
- Luxury auto deductions tripled by allowing a deduction of $10k in the first year, $16k in the second year, $9600 in the third year and $5760 in the fourth and later years. Maximum bonus depreciation is $8000.
- Old law required companies earning over $5 million to file on the accrual basis. New law says that companies under $25 million can file on a cash basis.
Meals & Entertainment
It was a surprise to many businesses that the new law does not allow entertainment expenses. This would include golf outings, ball games, movies, theatre, etc. The good news is that meals with clients are still 50% deductible, including meals while you travel. Be aware though, if you go to the ball game and have a meal, there is no deduction for the meal while participating in entertainment.
The old law allowed a 100% deduction for meals provided to all employees when there was a company meeting during a meal break. This has changed to be 50% deductible.
Holiday parties, company picnics, and employee appreciation remain at 100% deductible.
C-corporations
The old law taxed corporations between 15% to 35%. In fact, personal service corporations, like accountants, attorneys, architects, were taxed at a flat rate of 35%. The new law says that all corporations will be taxed at a 21% rate. This is fantastic for those personal service corporations, but businesses that were taxed at 15% may want to look at the options of switching their entity to pay less in tax. Corporations that have less than $87,100 of income will end up paying more in taxes.
The good news is that the alternative minimum tax (AMT) for corporations is eliminated!
Partnerships
Prior to the new law, the rule was that if a partnership sold more than 50% of the ownership, the partnership was automatically terminated. The new rule eliminates this rule.
Consult your attorney because partnerships will want to make sure that it is documented on who the partnership representative is. If there is no written representative, the IRS may assign someone and you could lose rights and control.
That’s just a quick look at some of the changes affecting businesses. If there ever was a year to do some business tax planning, this year is it. Contact us to find out more.