On December 22, 2017, the president signed into law the Tax Cuts and Jobs Act (H.R.1). “This major tax bill is essentially the most comprehensive overhaul of the tax code since 1986,” said CPA Chris Falco, a founding partner of the accounting firm Falco Sult. “However, it did little to simplify tax planning and preparation for the business sector.”
In order to educate business owners on how the new tax law will affect them, Falco shares the following three tips:
No. 1: Accelerated write-off of fixed assets and leasehold improvement. With the new tax law, bonus depreciation and Section 179 expensing were both enhanced to provide greater annual deductions for the purchase of equipment and vehicles. “You can now apply the bonus depreciation deduction to used equipment purchases as well,” noted Falco. “Furthermore, greater depreciation levels are allowed for vehicles that were limited. One item to note is that the 100% bonus depreciation increase is for assets placed in service after 9/22/17, so you may get some benefit of the new tax laws in 2017. Another area addressed was the length of time you are allowed to amortize leasehold improvements. Instead of 39.6 years, the new useful life is 15 years.”
No. 2: Entertainment expenses. The new law disallows any deduction with respect to (1) any activity considered to be entertainment, amusement or recreational; (2) membership dues with respect to any club organized for business, pleasure, recreation or other social activity; or (3) any facility or portion thereof used in connection with any of the above items. “So basically, you can still deduct 50% of your meals, but no deductions for entertaining at sporting events, country clubs or on your boat,” added Falco.
No. 3: Corporations and pass-through entities. C corporations will now pay tax at 21%, down from as high as 35%. New rules for sole proprietorships, LLCs, partnerships and Sub S corporations will typically be able to deduct 20% of so-called “qualified business income” from their taxable income on the taxpayer’s personal return. “It might sound simple, but this is probably the most complicated part of the new law and has many components and qualifications as to the availability of the deduction,” concluded Falco. “Depending on your ultimate total income, your actual deduction could be based on not only your net income from the business, but also total wages paid and/or total unadjusted asset value. If you are a ‘professional’ service company, there are additional limitations on the deduction.”