LEGAL MINUTE
Impact of Recent Federal and State Legislation on Law Firms and their Owners
Julian Fortuna Taylor English Duma LLP jfortuna @ taylorenglish . com
On December 22 , 2017 President Trump signed into law the Tax Reform Reconciliation Act , also known as the Tax Cuts and Jobs Act ( the “ Act ”). The Act is a major overhaul of the tax system and contains numerous revisions of tax laws applicable to both business and individual taxpayers , including law firms and their owners . Some states , including Georgia , have already enacted corresponding legislation .
Potential Tax Benefits
Parts of the Act that may provide tax benefits to law firms and their owners are :
• Capital Expenditures – Immediate write-off of qualifying expenditures for equipment , building and leasehold improvements , and certain other expenditures for property placed in service before January 1 , 2023 ;
• Family and Medical Leave – New tax credits of 12.5 to 25 percent of wages paid to employees on employer-paid family and medical leave if the wages are at least 50 percent of normally paid wages to those employees effective only for tax years beginning in 2018 and 2019 ;
• Corporate Tax Rate – Reduction in the corporate tax rate from 35 percent to 21 percent ;
• Individual Tax Rates – Temporary reduction in individual tax rates and brackets with a new top rate of 37 percent effective for tax years beginning before 2026 ; and
• Pass-through Deduction – New deduction for 20 percent of qualified business income , not including wages or guaranteed payments , from a pass-through entity for individual taxpayers with taxable income below the threshold amount of $ 157,500 ($ 315,000 for married filing jointly ).
Potential Tax Burdens
Other parts of the Act applicable to law firms that may increase taxes are :
• Client Entertainment and Membership Dues – Disallowance of deductions for client entertainment , amusement or recreation and membership dues for clubs organized for business , pleasure , recreation or other social purposes ;
• Employee Meals and Transportation – Reduction in the deduction for meals provided to employees on the premises of the employer from 100 to 50 percent and disallowance of deduction for transportation fringe benefits provided to employees ;
• Net Operating Losses – Repeal of net operating loss ( NOL ) carrybacks and limitation of NOL deduction to 80 percent of taxable income with carryforward of disallowed amount ;
• Business Interest Expense – Limitation on deduction of net busi-
“ As technology continues to progress and improve , many in the legal field have felt the change is long overdue .”
The Official News Publication of the Atlanta Bar Association THE ATLANTA LAWYER 19