H.R.1 Tax Cuts & Jobs Act FAQ
Is small business income receiving benefits in this measure?
Yep. Individuals in small pass-through businesses are going to be taxed at lower rates. You’ll get a write-off to equal 20% of the businesses’ income which is super cool. Of course, certain high earnings deductions will be capped at 50% of the taxpayer’s total share of the W2wages paid by the business. You knew there was a ceiling right?
So the big deal- was the corporate tax rate lowered?
Yes, it lowers the corporate tax rate to 21% (beginning January 1, 2018) down from 35%. This is the LARGEST reduction of the U.S> corporation tax rate in our nation’s history. (no wonder we love accounting in the U.S.A.!!!)
Did Congress address the Corporate Alternative Minimum Tax?
Yes Sir! They eliminated it!
Are existing business tax provisions included?
Yes, it retains the Low-Income Housing Tax Credit and the Research & Development Tax Credit.
Did Congress change the S Corporation conversion to a C Corporation?
The plan allows converting S corporation to spread tax impact of switching from cash accounting to accrual accounting method over six years in equal installments (applicable to corporations with greater than $25 million three-year average gross receipts).
Are equipment tax deductions changing?
Boom! – the measure expands a business’s ability to deduct the cost of equipment purchases. Your operations are going to improve in two ways…
- Bonus depreciation for new and used equipment – 100% depreciation through 2020 phasing down by 30% each year for the following five years through 2027.
- Sec. 179 Expensing Limits – It’s increased to $1 million with phase-out beginning at $20 million in total qualified property placed in service. This was expanded to include property used to furnish lodging and improvements to nonresidential real property including roofs, heating, ventilation and AC, fire protection, security systems, and alarms.
So, is there favorable equipment and property deduction changes?
Yes- the new law accelerates the write-off of certain types of real property and farming equipment by shortening the depreciation period. The annual write-off of passenger autos used in business as well as loosens restrictions on computer equipment.
Is small business accounting addressed?
We love accounting! Yes, it expands the ability to use cash method of accounting to all businesses that have less than $25 million in average gross receipts.
Status changes for business interest loan write off?
It retains the ability for small businesses to write off interest on business loans with some restrictions in place in loss years.
Important stuff you need to read:
These contained are general terms. The tax code will affect every business differently so consult a tax guy or gal that are nerdy and love to talk tax.