A Quick Look at Other Changes in New Tax Law
Tax rates–The top tax rate on C corporations drops to a flat 21 percent (down from 35 percent).
Expensing and bonus depreciation–The Section 179 deduction (first-year expensing) can be claimed for eligible property up to $1 million. The phase-out of this limit begins when annual purchases exceed $2.5 million. These dollar limits will be indexed for inflation after 2018.
Bonus depreciation, a first-year depreciation allowance for buying business equipment and machinery, is doubled to 100 percent for property placed in service after September 27, 2017, but only temporarily.
Accounting method–Eligibility rules for using the cash method of accounting have been expanded so that businesses with average annual gross receipts in the three prior years not exceeding $25 million (indexed for inflation after 2018) do not have to use the accrual method; they do not have to keep inventories (i.e., they can treat inventories as non-incidental materials and supplies).
Interest deduction–Generally, a deduction for interest is limited to 30 percent of a corporation’s income, with unused amounts carried forward. But this restriction does not apply to small businesses (average annual gross receipts of $25 million or less).
Net operating loss–NOL carryback is eliminated, except for a carryback for certain losses incurred in the trade or business of farming. The carryforward is capped at 80 percent of taxable income (90 percent after 2022) or the carryover amount if less.
Travel and entertainment expenses–Look for a nice increase in the limits for business cars placed in service in 2018 and thereafter. Not counting bonus depreciation, the first-year deduction jumps from $3,160 to $10,000.
But what the government giveth it taketh away. The deduction for entertainment expenses directly related or associated with the conduct of business were repealed. The 50 percent deduction for business meals remains.
Corporate AMT–Corporate alternative minimum tax (AMT) is repealed with no expiration for the provision. Prior year minimum tax credits continue to be allowed to offset regular tax liability.
Employer-Paid Wages for Family, Medical Leave–The law creates a tax credit, which ranges from 12.5 to 25 percent, for employer-paid wages for family or medical leave. It expires after 2019.
Sources: smallbusiness.com, CPAs