Overview of Provisions of the TCJA Affecting Businesses

The recently enacted Tax Cuts and Jobs Act has overhauled of many parts of the Internal Revenue Code. Here are some of the most important provisions in the new law that affect businesses. In my post next week, I will look at the changes affecting individuals.

Passthrough income deduction
For years after 2017 and before 2026, individuals will be allowed to deduct 20% of “qualified business income” from a partnership, S corporation, or sole proprietorship. A limitation on the deduction is phased in based on W-2 wages above a threshold amount of taxable income. The deduction is disallowed for specified service trades or businesses with income above a threshold.

Corporate tax rate
The act replaced the prior-law graduated corporate tax rate, which taxed income over $10 million at 35%, with a flat rate of 21%.

Corporate AMT
The act repealed the corporate AMT.

Bonus depreciation: The act extended and modified bonus depreciation under Sec. 168(k), allowing businesses to immediately deduct 100% of the cost of eligible property in the year it is placed in service, though 2022. The act also removed the rule that made bonus depreciation available only for new property.
Luxury automobile depreciation limits: The act increased the depreciation limits under Sec. 280F that apply to listed property.
Sec. 179 expensing: The act increased the maximum amount a taxpayer may expense under Sec. 179 to $1 million and increased the phaseout threshold to $2.5 million. These amounts will be indexed for inflation after 2018. It also expanded the definition of qualified real property eligible for Sec. 179 expensing to include any of the following improvements to nonresidential real property: roofs, heating, ventilation, and air-conditioning property, fire protection and alarm systems; and security systems.

Expenses and deductions
Like-kind exchanges: Under the act, like-kind exchanges under Sec. 1031 will be limited to exchanges of real property that is not primarily held for sale.
Domestic production activities: The act repealed the Sec. 199 domestic production activities deduction.
Entertainment expenses: The act disallows a deduction with respect to (1) an activity generally considered to be entertainment, amusement, or recreation; (2) membership dues for any club organized for business, pleasure, recreation, or other social purposes; or (3) a facility or portion thereof used in connection with any of the above items.
Meals: Under the act, taxpayers are still generally able to deduct 50% of the food and beverage expenses associated with operation their trade or business (e.g., meals consumed by employees on work travel). The act expands this 50% limitation to expenses of the employer associated with providing food and beverages to employees through an eating facility that meets requirements for de minimis fringes and for the convenience of the employer.

Please contact us to discuss how this new tax law affects you and your business.

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