Tax Cuts and Jobs Act - Business Update

July 31st, 2018

The recently enacted Tax Cuts and Jobs Act (TCJA) has altered the tax landscape for a lot of businesses. The changes are extensive, and this letter provides an overview of some of the highlights to keep you informed. Due to the sweeping nature of the changes and the need for continued guidance, we'd like the opportunity to have a personalized conversation with you to discuss planning opportunities for your specific situation. Additional conversations and tax projections are likely necessary to ensure we maximize your tax benefits. Please call our office at your earliest convenience to schedule a meeting. Our fees for the meeting as well as any tax projections will be based on the time expended at our standard billing rates.

Bonus depreciation and Sec. 179 expensing of fixed assets

Bonus depreciation and Sec.179 expensing of property have been available in varying amounts for quite a while. The new tax law has increased the bonus depreciation percentage to 100% until 2023, where it will decrease by 20% until it reaches zero. Bonus depreciation now applies to both new and used qualified property. The Sec.179 expense limit is now $1 million of allowable expensing with a total purchase threshold of $2.5 million. If you purchase more than $2.5 million in eligible fixed assets during the taxable year, the expense limit allowed will be reduced.
The higher limits and expansion in the definition of property that qualifies for these deductions allows for tax planning opportunities. As part of your planning, we'd like to understand your asset purchasing behavior and plans for the future so we can maximize these deductions for you.

New deduction for qualified business income

A new deduction, effective for tax years 2018 through 2025, was introduced in the TCJA that allows individuals a deduction of 20% of qualified business income from a partnership, S corporation or sole proprietorship, as well as 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income.
This deduction will reduce taxable income, but not adjusted gross income, and is available regardless of whether you itemize your deductions. There are many limitations and restrictions to this provision, so we advise that you schedule a personal consultation with us to fully understand the impact on your situation.

Entertainment expenses

The TCJA repealed the deduction for business entertainment. This includes expenditures such as taking clients to sporting events and shows and paying for season tickets for various entertainment events. Since these items are no longer deductible, it is very important to have your company's internal accounting set up appropriately. We can help you identify these expenses and treat them correctly on your tax return. And, we are happy to discuss how to account for these internally to streamline your tax compliance reporting. Please review the attached meals and entertainment summary.

Like-kind exchange restrictions

The new tax law restricts a like-kind exchange to real property (e.g., buildings and land). Under the prior law, you could utilize a like-kind exchange for tangible personal property (e.g., vehicles) and intangible property used in a business or held for investment. Under the new like-kind exchange rules the "trade-in" value of a vehicle will be treated as a "sale" of that vehicle for tax purposes, thus creating taxable ordinary income on the gain. Be aware of this change and contact us so we can help you plan accordingly.

While the TCJA is effective now, there are still many uncertainties. Additional technical guidance and regulations are necessary to provide more clarity on some of the changes. The Internal Revenue Service is working to provide that guidance, which we expect later this year.
We are at your disposal to identify opportunities within the new law that apply to you and help steer you away from new pitfalls and challenges. Please call our office to set up a tax planning meeting. As always, planning ahead can help you minimize your tax bill and position you for greater success.