Momentum - Business to Business Online Magazine MOMENTUM August 2018 | Page 32

Overview of the Business Tax Changes in the Tax Cuts & Jobs Act TCJA By: T. Mark Rush, CPA | Partner Ham, Langston & Brezina, LLP [email protected] Part I of a Series on the new Tax Cuts and Jobs Act The recently enacted Tax Cuts and Jobs Act (“TCJA”) is a sweeping tax package. Here’s an overview of some of the more important business tax changes in the new law, beginning in 2018. • Corporate tax rates reduced. One of the more significant new law provisions cuts the corporate tax rate to a flat 21%. Before the new law rates were graduated, increasing to a high of 35%. • Alternative minimum tax repealed for corporations. The corporate alternative minimum tax (AMT) has been repealed by the new law. • Net Operating Loss deduction modified. Under the new law, generally, NOLs arising in tax years ending after 2017 can only be carried forward, not back. The general two-year carryback rule has been repealed. These NOLs can be carried forward indefinitely, rather than expiring after 20 years. • Limit on business interest deduction. Under the new law, every business with average gross receipts of $25 million, regardless of its form, is limited to a deduction for business interest equal to 30% of its adjusted taxable income. For pass- through entities such as partnerships and S corporations, the determination is made at the entity. • Domestic production activities deduction repealed. The new law repeals the DPAD for tax years beginning after 2017. The DPAD formerly allowed taxpayers to deduct 9% (6% for certain oil and gas activities) of the taxpayer income from such activities. • New fringe benefit rules. The new law eliminates the 50% deduction for business-related entertainment expenses. The pre- Act 50% limit on deductible business meals is expanded to cover meals provided via an in-house cafeteria or otherwise on the employer’s premises. • Increased Code Sec. 179 expensing. The new law increases the maximum amount that may be expensed under Code Sec. 179 to $1 million. If more than $2.5 million of property is placed in service during the year, the $1 million limitation is reduced by the excess over $2.5 million. Both the $1 million and the $2.5 million amounts are indexed for inflation after 2018. The expense election has also been expanded to cover (1) certain depreciable tangible personal property used mostly to furnish lodging or in connection with furnishing lodging, and (2) the following improvements to nonresidential real property made after it was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; security systems; and other building improvements that aren’t elevators or escalators, don’t enlarge the building, and aren’t attributable to internal structural framework. • Bonus depreciation. Under the new law, a 100% first-year deduction is allowed for qualified new and used property acquired and placed in service after September 27, 2017 and before 2023. Pre-Act law provided for a 50% allowance, to be phased down for property placed in service after 2017. Under the new law, the 100% allowance is phased down starting after 2023. • Depreciation of qualified improvement property. The new law provides that qualified improvement property is depreciable using a 15-year recovery period and the straight-line method. Qualified improvement property is any improvement to an interior portion of a building that is nonresidential real property placed in service after the building was placed in service. MOMENTUM / August 2018 31