(Originally posted 02/26/2018)
. . . there could be substantial money in your pocket if you focus on your 2018 taxes today rather than waiting until the end of the year.
Thanks to the Tax Cuts and Jobs Act—signed into law by President Trump on December 22, 2017—many of the strategies you might have used in prior years need to be reevaluated . . . and the sooner the better to make sure you take full advantage of the law’s tax saving opportunities.
Here are just a few of the more significant changes to tax legislation you should be considering with your tax advisor:
Taxes for C Corporations were reduced from a maximum of 35% to a flat 21%. This rate is a permanent change to the tax code. It means C Corps may now be a more attractive corporate structure in some cases.
The new law also contains a deduction of up to 20% for qualified business income of pass-through entities like S Corporations and partnerships. This part of the law (set to expire in 2025) may be a major tax saver for some business owners.
The new law limits business interest deductions for certain taxpayers to 30% of adjusted taxable income. You need to be aware of how this part of the law affects your situation.
For some taxpayers, the new law also eliminates the burdensome Sec. 263A utilization or deductibility of inventory purchases; it allows the use of the cash basis method instead. This part of the law may be important to your business if require an investment in inventory.
If your business needs to purchase vital equipment, the Section 179 deduction now allows you to take a current year deduction of 100%—up to $1 million—for the purchase of needed equipment. Your small to mid-sized business may qualify for this significant tax savings.
What You Need to Discuss with Your Tax Advisor
These changes in the law, as well as other factors, make it important for you to review your company and its operations with your CPA or tax advisor to make sure you benefit from any and all potential tax savings. Here are a few topics to discuss:
Changes in cash tax liabilities and impact on:
- 2018 quarterly estimates
- Return on investment
- Redemptions and succession planning
- Tax distribution rates
Projection of short term and long term effective tax rates and planning including:
- Length of investment period and planned exit
- 2Allocations of income/loss among partners
- 3Method of entity capitalization between debt and equity
- State and local structuring and deductibility of taxes
- International structuring and taxation
- Review of various accounting methods and periods
Analysis of accounting methods and periods:
- Utilization of cash method for certain taxpayers
- Elimination of 263A for certain taxpayers
You should also make sure you have a conversation about how your small to mid-sized business can take advantage of Sec 179 for the purchase of needed equipment. By the way, the Sec. 179 deduction is now permanent.
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