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Watch Out for these Tax Issues When Planning for Your Business in 2018

Coffee cup, smartphone, glasses, pen, notepadThe Tax Cuts and Jobs Act makes sweeping changes. But some of the new provisions won't necessarily be relevant to your situation. Here's a quick reference guide to the major changes under the new law to help you understand what's changing.
In general, these changes are effective for tax years beginning after December 31, 2017. For businesses, these changes are permanent, unless otherwise noted.


Effects on Business Taxes

Alternative minimum tax (AMT)

Repeals AMT for corporations.

Bonus depreciation

Significantly expands first-year deductions but only temporarily.

Cash-basis accounting

Increases the annual gross-receipts threshold for eligibility to use this simplified reporting method.

Corporate tax rate

Installs a flat 21% tax rate that also applies to personal service corporations.

Cost segregation studies

Changes the depreciation rules and recovery periods; may warrant a study to reclassify certain costs, thereby accelerating deductions.

Domestic production activities deduction (DPAD)

Eliminates this break, also known as the manufacturers' deduction under Sec. 199.

Entertainment deductions

Reduces or eliminates tax breaks for business entertainment.

Entity choice

Introduces new considerations when deciding on business structure; applies 1) temporary changes for 2018 through 2025 to owners of pass-through entities and 2) permanent changes to C corporations.

Family and medical leave programs

Provides a new credit for employers.

Foreign operations

Provides tax incentives to repatriate foreign income and conduct operations in the United States.

Fringe benefits

Eliminates deductions for the cost of providing certain transportation-related employee benefits.

Interest expense deductions

Repeals the earnings stripping rules; provides new limits on interest expense deductions, with several exceptions.

Like-kind exchanges

Eliminates Sec. 1031 like-kind exchanges for exchanges of personal property; retains Sec. 1031 for exchanges of real estate.

Loan balances for departing employees

Introduces new rules for employees with outstanding 401(k) loan balances.

Long-term construction contracts

Expands the exception from the requirement to use the percentage-of-completion (PCM) method to report income from long-term construction contracts.

Meal expenses

Allows 50% deductions for on-premises cafeterias and meals provided for the convenience of employers for 2018 through 2025; eliminates these deductions after 2025.

Moving expenses

Requires employers to include job-related moving expense reimbursements as taxable income on employees' W-2s (except for active-duty members of the military) for 2018 through 2025.

Net operating loss (NOL) deductions

Imposes new limits; disallows NOL carrybacks but allows indefinite NOL carryforwards.

Owners' compensation

May affect pass-through income deduction for qualified business income (below).

Pass-through income deduction for qualified business income (QBI)

Creates a new deduction for sole proprietorships, limited liability companies (LLCs), partnerships and S corporations that's subject to numerous restrictions and available only from 2018 through 2025.

Recovery periods

Reduces the recovery periods for qualified improvement property; simplifies the rules.

Research costs

Requires specified research or experimental expenditures to be capitalized and amortized rather than currently deducted; goes into effect in 2022.

Section 179 expensing

Permanently liberalizes the Sec. 179 first-year depreciation rules.

Share-based payments

Allows qualified employees who exercise these instruments to defer related income for up to five years; may encourage private companies to issue these awards and employees to exercise them.

Uniform capitalization (UNICAP)

Expands the exception for small taxpayers from the requirement to follow the complicated UNICAP rules for inventory accounting.

Vehicle deductions

Makes temporary and permanent favorable changes to depreciation rules for vehicles used more than 50% for business.

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