Congress Passes Final Tax Reform Bill (TCJA) – Here Are The Key Changes for Businesses

Here is a quick rundown of some of the key changes affecting businesses. Except where noted, these changes are effective for tax years beginning after December 31, 2017. Be sure to consult your tax professional for your specific situation

DS+B Team December 20, 2017

On December 20th, Congress has passed the most sweeping tax legislation since the Tax Reform Act of 1986. The House passed the Tax Cuts and Jobs Act of 2017 (TCJA), which the Senate had passed the previous day. The bill makes small reductions to income tax rates for most individual tax brackets, significantly reduces the income tax rate for corporations and eliminates the corporate alternative minimum tax (AMT). It also provides a large new tax deduction for owners of pass-through entities and significantly increases individual AMT and estate tax exemptions. And it makes major changes related to the taxation of foreign income.

Here is a quick rundown of some of the key changes affecting businesses. Except where noted, these changes are effective for tax years beginning after December 31, 2017. Be sure to consult your tax professional for your specific situation.



Key changes affecting businesses:

 

Lowered Corporate Tax Rate
  • Replacement of graduated corporate tax rates (15% to 35%) with a flat corporate rate of 21%
New or Increased Deductions
  • 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 Rules and Limits
  • 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

 

  • 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

 

Eliminations and Repeals
  • Repeal of the 20% corporate AMT

 

  • 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

Year-end planning opportunities still available

We’ve only briefly covered some of the most significant TCJA provisions here – and there will be more information from DS+B in the weeks ahead.

If you have questions about what you can do before year end for tax planning, or you’d like to learn more about how these and other tax law changes will affect you in 2018 and beyond, please contact us. Keep in mind, there are additional rules and limits that apply, and the law includes many additional provisions – so always consult your tax advisor before taking action.