On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA), the most comprehensive tax reform since 1986. Every business will be affected by the new legislation, and while it appears most businesses will benefit, there are provisions that could have a negative impact in certain circumstances. Be prepared for anything by looking into some of these circumstances and the main provisions that will come into play.
Do You Operate as a C Corporation?
The TCJA will benefit all C Corporations, as it reduces the corporate tax rate from a graduated system that hovered around 35% to a flat 21% rate. Additionally, the corporate Alternative Minimum Tax (AMT) is eliminated.
Do You Operate as a "Pass-through" Entity (Sole Proprietorship, Partnership, LLC or S Corporation)?
The main benefit to a pass-through entity will come in the form of an additional deduction rather than a reduced tax rate. Under Section 199A, owners of these types of entities will be able to take a new deduction on their personal return called the "Qualified Business Income" deduction, which is generally equal to 20% of the company's income. This provision is subject to numerous limits and restrictions, and is one of the most complex of the new law.
Do You Have Significant Capital Expenditures?
The new legislation will allow businesses to immediately deduct 100% of the cost of qualifying property purchased from September 27, 2017 through December 31, 2022, whether new or used. This represents a significant increase over current law, which allows for a 100% deduction on $510,000 of qualifying property (whether new or used) and 50% of the cost thereafter (new property only).
Do You Anticipate Future Losses?
The TCJA modifies the treatment of C Corporation net operating losses (NOLs) in three ways. First, corporations will no longer be allowed to carry back their NOLs to offset taxable income in prior years. Second, where corporations could carry forward their NOLs for 20 years only, they will now be allowed to carry them forward indefinitely. Third, NOLs will only be able to offset 80% of a company's taxable income, rather than 100%. The new rules will apply to NOLs incurred after December 31, 2017.
Are You a U.S. Manufacturer?
Since 2005, manufacturers have benefitted from the domestic production deduction, which most recently was equal to 9% of a...