Trump Corporate Tax Changes

Without too much technical tax talk, here are some of what we believe are the more important business related tax law updates of the new Tax Cuts and Jobs Act. In this article we explain some more changes that took effect on January 1, 2018, which may impact your business starting in the tax year 2018.

Accelerated Depreciation Deduction – Tax Code Section 179

This section of the tax law allows businesses to deduct or write-off the full cost of qualifying equipment and/or software acquired during the tax year, in its first year rather than over the lifetime of the item. Under the new law, this section remains an incentive to businesses.

• Annual Limits of Section 179:
  • Up to one million dollars ($1,000,000), on the 2018 tax return.
  • Spending cap on equipment under Section 179 is two million dollars ($2,000,000) in 2018. Deduction begins to be reduced on a dollar to dollar basis above this amount.
  • After 2018 this limits will be indexed to inflation.
• Qualification for Section 179:
  • Equipment and/or software must be placed into service between January 1, 2018 and December 31, 2018.
  • Show record of date of purchase, date you started to use the property, and all the costs associated to your tax professional.

Businesses can also deduct for nonresidential real property buildings including: roofs, fire alarm and security systems, heating, ventilation and air conditioning (HVAC) systems.

Bonus Depreciation:

It is a tax-saving tool for eligible business, in which they can take an immediate first-year deduction on the purchase of an eligible business property.   It is generally taken after the Section 179 Spending Cap is reached and can be applied to new and used equipment. Under the new law business are allowed to deduct 100 percentage starting September 28, 2017 until December 31, 2022; with a phase-out as follow:

*Different dates apply to property with longer production period.

Limitation on Amount of Depreciation for Luxury Automobiles:

Business owners can deduct for a vehicle purchased to be used more than 50 percentage of the time for business purposes. The amount of depreciation deduction for any taxable years for any passenger automobile shall not exceed as follow:

Net Operating Losses (NOLs) Change Under Tax Cuts and Jobs Act:

The new law disallows businesses except farming businesses the carryback of the NOLs but allows indefinite carryforward. This rule applies to any NOLs. For farming businesses a two-year NOL carryback is still allowed.

• Limitation: the code limits the deduction for NOLs to 80 percentage of a taxpayer’s pre net operating losses deduction taxable income.   The limitation applies only to losses in tax years after December 31, 2017. Property and casualty insurance companies are exempt from this limitation.

1031 Like-Kind Exchanges

1031 Exchange is now only allowed for real estate property. An investor can sell a real estate property, to reinvest the proceeds in a new like-kind property and to defer all capital gain taxes. It applies to exchanges taken placed after December 31, 2017.

• Exceptions for any exchange if:
  • The property disposed of by the taxpayer in the exchange was disposed of on or before Dec. 31, 2017, or
  • The property received by the taxpayer in the exchange was received on or before that date.

Entertainment Expenses:

Taxpayers cannot make deductions for business-related entertainment expenses for amounts paid or incurred after December 31, 2017. The activities that cannot be deducted under this new law are:

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 Expenses:

Taxpayers can deduct up to 50 percentage of food and beverage expenses incurred while operating their trade or business, after December 31, 2017 and until December 31, 2025. This deduction includes expenses of the employer to provide food and beverages to employees via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. After December 31, 2015 the deduction for meals provided via on the employer’s premises will not be allowed. Other expenses are as following:

Cash Basis Method of Accounting:  

Under the cash method of accounting, revenues and expenses are reported when cash is received or paid. This method doesn’t include revenues and expenses that have been earned or incurred but have not been paid.

The new law has extended the list of taxpayers eligible to use this method of accounting. It now allows taxpayers with average annual gross receipts of $25 million or less in the three prior tax years to use the cash method. The $25 million gross-receipts threshold will be indexed for inflation after 2018.

The cash method of accounting may be used by taxpayers that satisfy the gross-receipts test, regardless of whether the purchase, production, or sale of merchandise is an income-producing factor.

Please contact you tax professional to discuss these changes. If you need assistance, please feel free to contact our office at 305.477.5671 or online at RosilloCPA.com and make an appointment to discuss your new 2018 tax strategies