A refresher on major tax law changes for small-business owners

The biggest tax law changes in decades will significantly impact business owners when they file taxes in the coming weeks. Some of the changes are complex, but business owners should keep in mind the biggest changes and how they will affect upcoming tax filings.

Taxation of pass-through entities

These changes generally affect owners of S corporations, partnerships, and limited liability companies (LLCs) treated as partnerships, as well as sole proprietors:

• Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent
• A new 20 percent qualified business income deduction for eligible owners (the Section 199A deduction)
• Changes to many other tax breaks for individuals that will impact owners’ overall tax liability

Taxation of corporations

These changes generally affect C corporations, personal service corporations (PSCs), and LLCs treated as C corporations:

• Replacement of graduated corporate rates ranging from 15 percent to 35 percent with a flat corporate rate of 21 percent
• Replacement of the flat PSC rate of 35 percent with a flat rate of 21 percent
• Repeal of the 20 percent corporate alternative minimum tax (AMT)

Tax break positives

These changes generally apply to both pass-through entities and corporations:

• Doubling of bonus depreciation to 100 percent and expansion of qualified assets to include used assets
• Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
• A new tax credit for employer-paid family and medical leave

Tax break negatives

These changes generally also apply to both pass-through entities and corporations:

• A new disallowance of deductions for net interest expense in excess of 30 percent of the business’s adjusted taxable income (exceptions apply)
• New limits on net operating loss (NOL) deductions
• Elimination of the Section 199 deduction (not to be confused with the new Sec.199A deduction), which was for qualified domestic production activities and commonly referred to as the “manufacturers’ deduction”
• A new rule limiting like-kind exchanges to real property that is not held primarily for sale (generally no more like-kind exchanges for personal property)
• New limitations on deductions for certain employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

Preparing for 2018 filing

Keep in mind that these are only some of the most significant and widely applicable TCJA changes; you and your business could be affected by other changes as well. Contact us at KraftCPAs to learn how you might be affected and for help preparing for your 2018 tax return filing — and to start planning for 2019, too.

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