Sell sheets created for top accounting firm Clark Schaefer Hackett
Sell sheets created for top accounting firm Clark Schaefer Hackett
Article on end-of-year tax reform I ghostwrote for a CSH shareholder. Published in the Toledo Business Journal.
TITLE: End-of-year tax reform guidance
The 2017 Tax Cut and Jobs Act (TCJA) ushered in both new and reduced benefits for businesses. Here are the changes every business needs to be aware of for end-of-year tax planning.
Pass-through entities
The new section, 199A, Qualified Business Income Deduction (QBID), offers a 20% QBID for eligible pass-through businesses, such as sole proprietorships and limited liability corporations. While the tax rate for pass-through entities can still run as high as 37%, with a QBID deduction, the maximum effective tax rate is 29.6%. Limitations apply for owners with higher income levels and specified service trades or businesses.
Required netting rules
Section 199A also requires taxpayers to combine net loss and net income from separate trades or businesses to arrive at their QBID for the year.
When a taxpayer’s eligible trades or businesses result in a combined overall net loss, no QBID may be claimed for the year. The combined excess net loss is carried over to the next taxable year.
Corporations
Instead of being subject to a tax rate based on income, corporations will now pay a flat rate of 21%. This also applies to personal service corporations that once paid a flat rate of 35%. In addition, the corporate alternative minimum tax has been eliminated.
Accelerated depreciation
The TCJA expands bonus depreciation and Section 179 depreciation deductions, encouraging businesses to invest in equipment in other assets. Most fixed asset additions qualify for 100 percent depreciation expensing.
Reduced corporate dividends deduction
The TCJA reduces the former 80% dividends deduction to 65%, and the 70% deduction to 50%.
Reduced business interest deductions
Before the TCJA, interest was fully deductible. Now both corporate and noncorporate businesses are limited to deductions below 30% of adjustable taxable income. Businesses with average annual gross receipts of $25 million or less for the three previous tax years are exempt from this limitation.
Paid family and medical leave
The TCJA also establishes a business tax credit for paid family and medical leave. Eligible employers must have a written paid family and medical leave policy that pays at least 50% of wages. The maximum tax credit businesses can claim is 25% of these wages.
Business meals and entertainment
Business entertainment is now non-deductible, but meals are still deductible as long as they aren’t “lavish.” The expense has to be ordinary and necessary (under $162 and paid or incurred during the taxable year). Company social activities for employees, including holiday parties, are still 100 percent deductible.
The good news for taxpayers is that there is still time to lower their 2018 tax bills. It’s not too late to contact a CPA for help with the new TCJA requirements.
