The coming of 2019 means the 2018 income tax filing season will soon be upon us. After year end, it’s usually too late to take action to reduce 2018 taxes. Business owners might, therefore, want to shift their focus to assessing whether they will owe taxes or get a refund when filing their returns this spring so that they can plan accordingly.
With the most significant tax law changes in decades—under the Tax Cuts and Jobs Act (TCJA)—usually going into effect starting in 2018, most businesses and their owners will be greatly affected. Brushing up on the major changes is a good idea.
Taxation of pass-through entities
These changes usually impact owners of partnerships, S corporations, and limited liability companies (LLCs) treated as partnerships, as well as sole proprietors:
• 0 to 4 percentage points drop from individual income tax rates (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
• For eligible owners, a new 20% qualified business income deduction (the Section 199A deduction).
• Changes to many other tax breaks for individuals that will affect owners’ overall tax liability
Taxation of corporations
These changes usually impact C corporations, LLCs, and personal service corporations (PSCs) treated as C corporations:
• 15% to 35% replacement of graduated corporate rates with a flat corporate rate of 21%
• Replacement of the flat PSC rate of 35% with a flat rate of 21%
• The 20% corporate alternative minimum tax has been repealed (AMT)
Tax break positives.
These changes usually apply to both corporations and pass-through entities:
• Expansion of qualified assets to include used assets and doubling of bonus depreciation to 100%
• An increase of the expensing phaseout threshold to $2.5 million and doubling of Section 179 expensing limit to $1 million.
• medical leave Tax break negatives and a new tax credit for
These changes usually also apply to both pass-through entities and corporations:
• A new disallowance of deductions for net interest expense over 30% of the business’ adjusted taxable income (exceptions apply)
• New limits on net operating loss (NOL) deductions.
• Elimination of the Section 199 deduction (not the new Sec.199A deduction), which was for qualified domestic production activities and commonly known as the “manufacturers’ deduction.”
• A new rule limiting like-kind exchanges to real property that
• New limitations on deductions for certain employee fringe benefits, like entertainment and, in certain circumstances, transportation and meals.
Preparing for 2018 filing
Consider that additional rules and limits apply to the rates and breaks enclosed here. Similarly, these are only some of the most noteworthy and widely applicable TCJA changes. You and your business might be affected by other changes as well. Contact us to learn exactly how you may be affected and for help getting ready for your 2018 tax return filing—and beginning to plan for 2019, too.
Ben R Shull CPA LLC provides clients with tax, transaction, and advisory services. The insights and quality services we deliver help lead our clients through the next generation of changes, and accelerate growth while reducing risk. CPA Katy, TX.