The tax bill recently passed by the Senate affects everyone, but if you own a business, you may find yourself affected more than most. Although the provisions affecting individuals have been discussed far and wide in the news, the changes made for businesses are still leaving some business owners unsure of where they stand.
Some of the most notable changes the tax bill makes for businesses are:
Corporate Tax Rate: Reduced to 21%, effective after 12/13/17, and with adjustment for excess tax reserves.
New deduction for pass-through income: The new law provides a 20% deduction for “qualified business income,” defined as income from a trade or business conducted within the U.S. by a partnership, S corporation, or sole proprietorship. Investment items, reasonable compensation paid by an S corporation, and guaranteed payments from a partnership are excluded. The deduction reduces taxable income but not adjusted gross income. For taxpayers with taxable income above $157,500 ($315,000 for joint filers), (1) a limitation based on W-2 wages paid by the business and the basis of acquired depreciable tangible property used in the business is phased in, and (2) the deduction is phased out for income from certain service related trades or businesses, such as health, law, consulting, athletics, financial or brokerage services, or where the principal asset is the reputation or skill of one or more employees or owners.
Section 179 Expensing Limits: Section 179 allows business to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year from their gross income. The new tax bill has increased this limit to $1 million, and expanded the limits to include property used to improve nonresidential dwellings, including roofing, fire alarm and security systems, heating and air conditioning, and furnishings.
Small Business Accounting: This amendment to the bill expands the ability to use cash method of accounting to all businesses that meet a $25 million gross receipts test for the three taxable years prior.
Employer-Provided Fringe Benefits: Business deductions for entertainment expenses, membership dues, and parking/transit benefits will be prohibited. The deduction for food and beverages provided on the premises of said business is limited to 50% up until 12/31/2025, after which the deduction will be prohibited altogether. Additionally, cash, gift cards, and other nontangible personal property will no longer be deductible forms of employee achievement awards.
Repealed Provisions Include:
- Tax-free rollover of capital gain into Small Business Investment Company
- Deduction for local lobbying expenses
- Corporate Alternative Minimum Tax
If your business finds itself in need of legal counsel during this time of rapid change, don’t hesitate to contact an experienced attorney at Whiteman Osterman & Hanna.