Business Tax Changes in the Tax Cuts and Jobs Act

• Publication year: 2018
• Author: Kenneth W. Minesinger and Richard Ardito

Business Tax Changes in the Tax Cuts and Jobs Act

Kenneth W. Minesinger and Richard Ardito

Ken Minesinger is a tax lawyer in Riverside. He is also Associate Professor of Law and the Treasurer of the California Lawyers Associating, Business Law Section.

Dr. Richard (Rick) Ardito, CPA and Assistant Professor, runs his own tax and accounting practice and teaches courses in business and accounting at California Baptist University. Rick is a serial entrepreneur, and believes that entrepreneurs, in partnership with successful charities, constitute the key to a thriving global population.

Introduction

After nearly a year of debate, Congress passed, and President Trump signed into law, H.R. 1,¹ more commonly known as the Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act (hereafter, TCJA) was enacted in response to widespread criticism that the American tax code was unnecessarily complicated, and, especially in relation to corporate tax rates, was making the U.S. economy uncompetitive.

The TCJA amended the Internal Revenue Code of 1986 and introduced sweeping changes for individual and business taxpayers. This article will focus on the changes that affect domestic business taxpayers. The TCJA also included major changes to the federal tax regime affecting multinational corporations, which are beyond the scope of this article.

Rates

Before the passage of the TCJA, on December 22, 2017, corporate tax rates were as follows:

Taxable Income Range	Marginal Corporate Tax Rate
$0-$50,000	15%
$50,000-$75,000	25%
$75,000-$100,000	34%
$100,000-$335,000	39%
$335,000-$10,000,000	34%
$10,000,000-$15,000,000	35%
$15,000,000-$18,333,333	38%
$18,333,333 and above	35%

Under the new bill, corporate tax rates have been simplified and lowered for all brackets, except the $0-$50,000 range, to a flat 21%.² The new simplified corporate rates are as follows:

Taxable Income Rate	Marginal Corporate Tax Rate
$0-$50,000	15%
$50,000 and above	21%

Alternative Minimum Tax

Credits and deductions have been said to benefit certain high-income taxpayers and unfairly and substantially reduce the amount of tax owed by those taxpayers. To prevent this from occurring, the Internal Revenue Code has imposed an alternative minimum tax (hereafter, AMT) on individuals³ and corporations.⁴ Calculation of "alternative minimum taxable income" is beyond the scope of this article; however, before the passage of the TCJA, the Internal Revenue Code generally imposed an AMT of 20% on the excess of a taxpayer's alternative minimum taxable income over the exemption amount.

The TCJA eliminated the AMT for corporations.⁵

Depreciation

The TCJA extended and modified bonus depreciation rules.⁶ Previously, businesses could take up to a 50% depreciation deduction on new property placed into service during the tax year, but that benefit was set to phase out, allowing 40% bonus depreciation in 2018, 30% in 2019, and no bonus depreciation after that. Under the new bill, businesses can now take a 100% depreciation deduction on new assets...