The reforms in the Tax Cuts and Jobs Act represent the most sweeping tax overhaul in 30 years. Here are some of the most important changes that may affect your business:
Qualified Business Income Deduction. Many owners of pass-through businesses, such as partnerships and S corporations, may deduct up to 20% of their qualified business income. This qualified business income deduction can be claimed by eligible taxpayers on 2018 federal income tax returns but with notable exceptions, including service-based businesses like accounting firms or doctors’ offices.
Lower Corporate Tax Rate for C Corporations. The centerpiece of the new tax law is the reduction of the corporate tax rate from a top rate of 35% to a flat rate of 21%. This may be a substantial cut for many businesses structured as C corporations. However, for less profitable C corporations, the reforms could mean a larger tax bill because it eliminated the 15% rate on the first $50,000 of taxable income.
100 Percent Expensing for Qualifying Business Assets. Most depreciable business assets can now be fully written off in the year the business places the assets in service. This generally applies to depreciable assets with lives of 20 years or less (such as, machinery, computers, and furniture). This part of the tax reform law lasts until 2022 and then phases out over several years.
Increased Depreciation Allowances for Vehicles. Businesses that purchased new or used vehicles after September 27, 2017, and placed them into service in 2018 can claim a greater maximum allowance than under the prior law. In addition, for qualified new and used heavy SUVs, pickup trucks, and vans purchased for the business, 100% of the cost can be written off.
The application of the new tax reform legislation can be complex. If you require the benefit of an experienced CPA or tax counsel, we would be pleased to put you in contact with the right professionals. Call our office at (248) 477-6300.