Now That The Dust Has Settled – How the Tax Cuts and Jobs Act Affects Your Business Tax Planning

The signing of the Tax Cuts and Jobs Act ushered in one of the most comprehensive adjustments to the United States tax code that has been seen in decades. The most sweeping parts of the legislation reduced tax rates for businesses and individuals. These changes are projected to lead to a GDP growth between 0.25 to 1.5 percent in the next few years.

Why Are Businesses Excited About the New Legislation?

The reduction in taxes across the board has many businesses excited about the prospects of leaving more money in their pockets once tax season comes around. Even though the new bill is just a couple of weeks old now, there’s been a lot of discussion about how some of its major components will affect businesses as they address their tax planning obligations.

A lot of the legislation’s momentum hinges on business optimism that is driven by their investment and subsequent consumer spending. Here are some of the ways the Tax Cuts and Jobs Act will affect business tax planning.

Be Prepared for Fewer Taxes

Large and small businesses alike should be excited that the Tax Cuts and Jobs Act deeply slashed business taxes all the way from 35% to 21%. The effective tax rate on businesses also shifted downward from 25% to 21%. These drastic cuts are some of the hallmarks of the legislation and mean that businesses should be prepared to pay a fair amount less on their taxes as long as the legislation in place.

Bonus Deductions Have Gone Up

Many businesses will also be pleased that the bonus deduction rate for property bought and put in service during 2018 is up from $500,000 to $1,000,000. This is projected to help businesses move ahead with expansion-based projects and acquisitions because they can deduct expenses right now rather than over a couple of years on a depreciation schedule.

Those with Pass-Through Income Will Pay Fewer Taxes

The new tax legislation also gives a 20% deduction for specific types of qualified pass-through income. This affects individuals and pass-through small businesses like LLCs, Sub S Corps, and partnerships. This deduction will be taxed at the individual rate. Before, income from pass-throughts was taxed at the highest personal income rate (39.6%).

More Opportunities to Take Advantage of the Research & Development Tax Credit

The new tax legislation lets companies take the research and development credit against the alternative minimum tax. This new provision opens the R&D credit to a lot of companies that were not able to take advantage of it before. Plus, since the corporate alternative minimum tax is gone, smaller C Corps should find it a lot easier to use the research and development credit alongside their R&D carryforwards. Many states also have research and development tax credits since the measure has always been popular among those in the political world.

Overall, the new Tax Cuts and Jobs Act will lead to some big changes in tax preparation and planning for businesses once all parts of the legislation come into full force. The numerous incentives for businesses and corporations alike should help spurn economic development and expansion.

If you have questions about the new tax law, contact us today to schedule a consultation.

Posted in: Tax Planning

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