The Tax Cuts and Jobs Act (new law) has made some major changes to business tax law. A lot of the changes were effective as of January 1, 2018 and a lot of the business changes do not expire.
Below are a few changes that will help lower your business tax liability this year and in the future:
C-corporations: Now have a flat tax of 21% and the special tax rate for personal service corporations is eliminated. Corporate AMT has also been eliminated!
Small business deduction: The biggest and arguably the most complicated addition to the new law is the new deduction for qualified business income from pass-through entities (LLCs, LPs, trust and estates). You can also be eligible for this deduction if you are a sole proprietor or have rental properties. There is a lot to this so, if you are self-employed or have a partnership, LLC, S corporation, or you have rental income, you will want to talk with a knowledgeable CPA or tax preparer.
Fixed Assets: The new law allows up to 100% of newly-acquired assets to be deducted in the year purchased, instead of depreciating them over the life of the asset. This change is one change that was retroactive to September 28, 2017. Another change is that used equipment purchased for your business was not eligible for special bonus depreciation rules, but now used equipment does qualify. Also, section 179 expense limitation has increased to $1 million with a phase-out starting at $2.5 million.
The following business deductions are no longer available:
Entertainment deduction: There is no longer a deduction for business entertainment such as golf outings with clients (or employees), tickets to professional sporting events, and theater tickets, etc. You will want to create a separate account to track these nondeductible expenses instead of including under "meals and entertainment", as it will help alleviate any headaches when it is time to file your 2018 taxes.
Moving expenses: Employees can no longer deduct moving expenses, and employer reimbursement for these expenses is considered wage income. So if an employee who relocates was reimbursed in 22018 they will pay tax on what they receive.
Like-kind Section 1031 exchanges: Deferral of gain for exchanged property is can now only be done on real estate property. Trading of vehicles, art and other collectibles will not qualify for like-kind IRC Section1031 exchanges.
Qualified transportation fringe benefits: Deductions for expenses associated with providing any qualified transportation fringe benefits to employees are repealed except as necessary to ensure the safety of an employee. Employers who were providing parking and transits passes in prior years and claiming business deduction may want to switch to a pretax salary reduction plan starting in 2018. Qualified transportation costs will continue to be tax-exempt to employees who pay their own costs using pretax income through an employer-sponsored salary-reduction program.
This is not an exhaustive list of the changes, so you will want to speak with a knowledgeable CPA or tax preparer. If you want to read the full text of the new law click here.
If you want to see updates from the IRS you can click here.