The recently enacted Tax Cuts and Jobs Act (TCJA) has altered the tax landscape for a lot of businesses. Please consult your HM&M advisor if you would like to have a conversation about how your business has been impacted or any of the following strategies.
Tax Strategies for Businesses – Part I
New Corporate Tax Rate – Choice of Entity
The prior-law graduated corporate tax rates have been consolidated into one 21% flat rate. The separate rate for personal service corporations of 35% has been repealed. These changes are effective for tax years beginning after December 31, 2017. For fiscal-year corporations, the calculation of tax will be determined using a blended rate based on the number of months at the old versus the new rate structure.
We have had conversations with attorneys who have indicated that, in light of the significant changes in business taxation under the new law, a governing person/board of a business entity may have a fiduciary duty to examine whether or not the present entity structure should be changed or maintained. You may want to consult your attorney about this question.
We have a tool that can be used to help you determine if it would be beneficial for your entity to consider a switch in entity type.
Net Operating Losses (NOLs)
Under the prior tax law, NOLs could be carried back two years or carried forward for 20 years. Unfortunately, the TCJA repealed the ability to carry back a NOL and claim a refund for already-paid taxes, effective for tax years starting after December 31, 2017. If you have a tax situation that resulted in a NOL, we can advise you of the best options.
Interest Expense Deductibility
The TCJA introduced a limit in the deductibility of business interest to 30% of taxable income. However, this limitation does not apply to most taxpayers with gross receipts of $25 million or less. If your gross revenues exceed $25 million, we recommend having a discussion with us about the impact on your business. Regardless, with careful planning, we can help you maximize your deduction.
New Pass-Through Deduction for Qualified Business Income
A new deduction, effective for tax years 2018 through 2025, was introduced in the TCJA that allows individuals, trusts, and estates a deduction of up to 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.
Your responsibility as a business manager will be to provide enough information to the owners of the business for them to be able to calculate the potential deduction. You may need to provide owners pass-through
deduction-related information, even if the business has no qualified business income. 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.
Let’s discuss your business outlook and options for 2018 and future years!
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