As you are likely aware, major tax reform legislation was signed into law at the end of last year that resulted in sweeping changes to the tax code for the first time in about 30 years. We are reaching out to you to alert you of changes in the law that may be impacting your business and to suggest setting a time in the next month or so to discuss tax planning.

Among the changes, the corporate tax rate cuts are significant. The 2017 tax act provides for a 21% flat corporate tax rate. Businesses conducted as sole proprietorships, partnerships, or S corporations are subject to a special deduction beginning in 2018.

Following are highlights for tax years beginning after December 31, 2017.

Business Deductions and Credits

  • Section 179 Depreciation Deduction:
    • The expensing limitation is increased to $1 million and the phase out amount to $2.5 million.
    • The new limitations are to be adjusted for inflation.
    • The act further expands the definition of Section 179 and includes a broader range of assets that can be expensed. This includes the definition of qualified real property for improvements made to nonresidential real property.
  • Research and Development Credit:
    • The research and development credit is preserved.
  • Deductions for Income Attributable to Domestic Production Activities:
    • The deduction for income attributable to domestic production activities is
  • Entertainments Expenses Deductions:
    • No deduction is allowed generally for entertainment, amusement, or recreation; membership dues for a club organized for business, pleasure, recreation, or other social purposes; or a facility used in connection with any of the above.
  • Net Operating Loss Deduction:
    • For net operating losses (NOL) arising in tax years beginning after Dec. 31, 2017, the limit on the NOL deduction is 80% of the taxpayer’s taxable income and provides that amounts carried to other years be adjusted to account for the limitation. Amounts are to be carried forward indefinitely.

Corporations

  • Corporate Tax Rate:
    • There is a 21% flat corporate tax rate; there is no special tax rate for personal service corporations.
  • Alternative Minimum Tax:
    • The alternative minimum tax (AMT) is repealed. In 2018, 2019 and 2020, if a taxpayer has AMT credit carryforward, the taxpayer is able to claim a refund of 50% of remaining credits (to extent credits exceed regular tax for year). For 2021, the taxpayer is able to claim a refund of all remaining credits.

Pass-Through Entities

  • Pass-Through Tax Rate:
    • Generally a 20% deduction for qualified business income is provided in lieu of tax rate changes. Special rules apply when computing the deduction. The deduction expires for tax years beginning after Dec. 31, 2025.

Please contact us at 816-858-5959 or services@ungercpas.com to discuss the new rules that are impacting your business. We would like to work with you to create and implement tax planning steps to help you maximize opportunities created by the tax reforms.