Tax Cuts and Jobs Act provides relief for corporations, other businesses
Q: The largest tax reform in decades, informally known as the Tax Cuts and Jobs Act (TCJA), significantly affects businesses. Is it true corporations are looking at a greatly reduced tax rate?
A: Most entities taxed as C corporations will see a significant federal income tax rate reduction, as the graduated tax bracket system with a top rate of 35 percent was replaced by a flat rate of 21 percent.
Q: What about relief for businesses that aren’t corporations?
A: In an effort to provide a similar reduction to S corporations, partnerships and sole proprietors, noncorporate owners are allowed a deduction of up to 20 percent of domestic qualified business income for the 2018 through 2025 tax years, subject to limitations and phaseouts.
Q: Are business’ entertainment expenses now disallowed for tax purposes?
A: Under previous law, taxpayers were generally allowed a 50 percent deduction for certain amounts paid for entertainment, recreation and amusement unless an exception applied. Effective Jan. 1, 2018, these amounts now are generally nondeductible with a few exceptions. While additional guidance is expected to clarify several areas of uncertainty, businesses and their owners should consider creating or updating procedures to separately account for these amounts.
Q: Apparently businesses were allowed a bonus depreciation deduction in certain circumstances, and has that now been increased?
A: Under previous law, taxpayers could claim a 50 percent bonus depreciation deduction for qualified property where the original use began with the taxpayer that was placed in service before Jan. 1 (Jan. 1, 2019, for certain property with a longer production period). The Tax Cuts and Jobs Act increased this deduction to 100 percent of the adjusted basis of qualified property placed in service and expanded it to include used property. This newly revised deduction applies to property placed into service after Sept. 27, and before Jan. 1, 2023, making it partially retroactive. The expanded deduction is scheduled to phase down at a rate of 20 percent per year for tax years after Dec. 31, 2022. The effect can be very significant for taxpayers acquiring the assets of another business.