Plain and Simple: Bright Business Insights Winter 2018 | Page 4

LAYMAN’S TERMS, PLEASE …
Decoding Tax Changes Outlined in the New Tax Cuts and Jobs Act
Everyone will feel the impact of the Tax Cuts and Jobs Act (TCJA)
in one way or another. But “how will it affect my business?” is the To simplify recordkeeping for small businesses, those with less
question on many business owners’ minds – and perhaps yours as well. than $25 million in average gross receipts over the most recent
Let’s take a glance at some of the highlights based on entity type: three-year period are not required to maintain inventory.
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As a result, taxpayers can account for their inventories as non-
The overwhelming majority of businesses in the U.S. (about 95
incidental materials and supplies (which may be expensed by
percent) are “pass-throughs,” which have their income “passed
using the de Minimis Safe Harbor Election) or by using the same
through” to their owners to be taxed under the individual income
treatment of inventories for financial statement purposes.
tax. One of the most anticipated changes is the new 20 percent
deduction for pass-through qualified business income. To
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qualify, you must be doing business as a sole proprietorship, The expensing limit has been increased to $1 million, up
rental real estate, partnership, limited liability company or S from $510,000 in 2017. The definition of eligible property
corporation. The calculation of this deduction can be complicated has also expanded.
since it’s subject to exclusions and thresholds. Keep in mind that
the income must be from a trade or business within the U.S.,
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purchased and placed in service after Sept. 27, 2017.
S corporation or guaranteed payments to partners for services
provided to your partnership.
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fringe benefits. The only good news here is that the TCJA allows
income tax rate of 21 percent for tax years beginning after
these benefits to remain nontaxable to employees receiving them.
Dec. 31, 2017, replacing current tax rates that range from 15 to 35
the special tax rate on personal service corporations (PSCs).
Accordingly, PSCs, like other corporations, will now be taxed at
the flat 21 percent tax rate. This is good news for owners of C
corporations with the exception of those who were in the lowest
tax brackets due to low income. As a result of this change, there
has been a renewed interest in looking into the tax difference
between a pass-through entity and a C corporation (just remember
that nearly 95 percent of businesses are pass-through because of
the prior tax advantages).
Significant Tax Changes For All Businesses
In addition to the entity-related changes listed above, several other
significant tax code alterations are sure to have an impact on your
business’s bottom line.
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The new tax law now disallows the deduction for employers that
provide parking, van pooling, and other types of transportation
For C corporations, the TCJA established a flat corporate
percent (as noted in the previous article). The act also eliminates
Bonus depreciation for the first year of the asset has increased
from 50 percent to 100 percent and applies to new and used assets
and the deduction cannot be applied against wages from your
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The new tax law expands the rules for writing off fixed assets.
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The Domestic Production Activities Deduction has provided a tax
deduction for owners of technology development, construction
and manufacturing businesses since 2004. This deduction is no
longer allowed for tax years starting in 2018 for pass-through
business entities and starting in 2019 for C corporations.
Don’t Travel This Road Alone
As you can see, the tax changes outlined in the TCJA are many and
complex. Fortunately, you don’t need to try to make sense of it all
on your own! The bottom line is that, thanks to the TCJA, you have
many opportunities to save taxes in 2018 and beyond. The key is
planning early and seeking the help of qualified accounting and tax
professionals. Be sure to reach out to your accountant to discuss all of
the TCJA changes and see how your business can apply these changes
in order to reduce your income tax burden.
Many businesses account for inventory when the production,
purchase or sale of merchandise is an income-producing
factor and generally must use the accrual basis method
of accounting. There were exceptions for t