Tax Cuts & Jobs Act 2017 | Business Provisions

Tax Cuts & Jobs Act 2017 | Business Provisions


The Tax Cuts and Jobs Act of 2017 significantly changed the landscape for businesses, both small and large, and expect to feel the impact of these adjustments for many years to come. The link to the detailed table below compares modifications that went into effect starting January 1, 2018 with previous tax law allowing you to easily determine elements having the most impact to your business.

Click Here for a Comparison of Changes to the Previous Business Tax Laws

The following are business provisions from the Tax Cut and Jobs Act of 2017. Our overview includes general provisions as well as those impacting corporations, pass-through entities, and non-profit organizations.

General

Section 179 Expensing
The expensing limitation is increased to $1 million and the phase out beginning at $2.5 million assets placed in service.

Bonus Depreciation
100 percent expensing allowed through 2022 for qualified property placed in service after 9/27/2017; 80, 60, 40 & 20 percent bonus depreciation for property placed in service in 2023–2026, respectively.

Research and Development Credit
Research and Development Credit is preserved.

Income Attributable to Domestic Production Activities Deductions (DPAD)
DPAD is repealed and no longer available. The repeal may have a great impact on manufacturing companies that previously enjoyed significant DPAD credits.

Entertainment Expense 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. This is a significant departure and includes disallowance of meals and entertainment expenses that were previously 50% deductible.

NOL Deduction
The limit on the NOL deduction is 80% of the taxpayer’s taxable income for the current year and provides that amounts carried to other years be adjusted to account for the limitation. Therefore, income will no longer be reduced to zero with available NOL’s. Amounts are to be carried forward indefinitely and do not expire. Additionally, NOL’s can no longer be carried back 2 years, except for farming NOL’s.

Business Interest Expenses
Deduction for net interest expenses incurred by a business is limited 30% of the business’s adjusted taxable income. Businesses with average annual gross receipts of $25 million or less are exempt from the limit. Disallowed interest could be carried forward indefinitely.

Like Kind Exchanges
Deferral of gain is now limited to like-kind exchanges to real property that is held primarily for sale.

Corporations

Corporate Tax Rate 
There is a 21% flat corporate tax rate. There is no special tax rate for personal service corporations, and the maximum corporate tax rate on capital gains is repealed.

Alternative Minimum Tax
The alternative minimum tax is repealed. Taxpayers with unused AMT tax credits will able to claim a refund of 50% of remaining credits (to extent credits exceed regular tax for year) in 2018, 2019 and 2020. For 2021, taxpayer is able to claim a refund of all remaining credits.

Cash Method of Accounting 
Taxpayers with average gross receipts of less than $25 million (indexed for inflation) for the prior three taxable years are permitted to use the cash method of accounting, regardless of entity structure or industry.

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 and limitations apply when computing the deduction, including a highly debated carve out for specialized entities whose principle business asset is the skill or reputation of the owners/employees. The deduction expires after December 31, 2025.

Non Passive Losses
Non passive losses from flow thru entities are limited to $250,000 and $500,000 (MFJ); excess loss treated as NOL are carried forward.

Non-Profit Organizations

Executive Compensation 
Imposes an excise tax equal to the corporate tax rate (set at 21% by the legislation) on compensation plus any parachute payment in excess of $1,000,000 paid to any of a tax-exempt organization’s five highest compensated employees or covered persons for the tax year (including any employee who was one of the organization’s five highest paid employees in any tax year beginning after 2016). The tax applies to all remuneration (including non-cash benefits) except for payments to tax-qualified retirement plans and amounts that are excludible from the executive’s gross income. Certain rules regarding the determination of when rights to compensation are no longer subject to a substantial risk of forfeiture applicable to deferred compensation plans apply in determining when compensation may be subject to the tax. In addition, payments to medical professionals (such as doctors, nurses, and veterinarians) for medical services rendered are exempted from the definition of “compensation” for purposes of the tax. The tax is effective for tax years beginning after 2017.

 

Excise Tax on Private Colleges & Universities
Private colleges and universities (and their related organizations) that have: (1) at least 500 students; (2) at least 50% of their students located within the United States; and (3) assets (not including assets used directly in carrying out the institution’s educational purpose) with an aggregate fair market value of at least $500,000 per full-time student at the end of the preceding year are subject to 1.4% on net investment income.. The number of students will be determined using an average daily student count (with part-time students treated on a full-time equivalent basis).

Unrelated Business Income (UBI)
Unrelated Business Income (UBI) modifies UBTI to require organizations to calculate UBTI separately for each trade or business carried on — in effect prohibiting deductions relating to one business from offsetting income derived from another business, effective for tax years beginning after 2017.