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Business Highlights of the Tax Cuts & Jobs Act

Unsplash-Joshua Earle(Originally posted 01/25/2018)

The bill that recently passed both Houses of Congress and signed by President Trump makes significant changes in your company’s income taxes. Here are some highlights of the final tax reform bill:

Corporate tax rate will be a flat 21%

Corporate AMT has been repealed

Section 179 expensing is increased to $1,000,000. Some qualified real property is now eligible such as roofs, HVAC, fire alarm systems and security systems.

Bonus depreciation percentage raised to 100% for assets added between September 27, 2017 and December 31, 2022. After that it decreases 20% each year till it is 0. Used property now qualifies for bonus depreciation.

The definitions of Qualified Leasehold Improvement, Qualified Restaurant and Qualified Retail Improvement Property are repealed. Replacing these with a more general Qualified Improvement Property definition.

Research and Experimentation costs will no longer be deductible in the year incurred but will be capitalized and amortized over five years. No acceleration if the project is abandoned, amortization must continue.

Revenue recognition must match financial statements. Advanced Payments may qualify for a one-year deferral.

Interest expense will be limited to 30% of adjusted income plus interest income. Disallowed amount will be carried over. There is a small taxpayer exception.

Net Operating Loss deductions will be limited to 80% of income. No carryback but no expiration of carryforward.

Like kind exchanges limited to real estate. Exception for exchanges started in 2017 and completed in 2018.

Entertainment expenses are no longer deductible and all meals subject to the 50% limitation. The Domestics Production Activities Deduction (DPAD) is repealed

No deduction for payments related to sexual harassment if a non-disclosure provision is included

Capital gains related to a Profits Interests will need to have been held for three years to avoid being characterized as short-term gain

Note: Unless noted, all business provisions do not expire.

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